3 times a gold investment really shines

Gold is worth investing in for a number of reasons. It delivers reliable long-term returns, is highly liquid and protects against economic turbulence that can devastate other assets. It’s a smart investment in any economy, but it’s especially valuable when times are tough. In this article, we’ll explore when owning gold can really pay off.

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3 times a gold investment really shines

Here are three times when a gold investment is particularly profitable.

During times of inflation

Rising interest rates and inflation shrink the dollar’s purchasing power. Gold can protect your money during inflation because it tends to be worth more when the dollar is weak.

Consider the 1970s, when interest rates soared into the double digits. In January 1970, the federal funds rate averaged 8.98%, according to the Federal Reserve Bank of St. Louis. By January 1980, it had reached 13.82%. Over that same period, gold prices skyrocketed from $35 per share to $850 per share, according to NASDAQ data.

Compare this to other investments, such as stocks, which often suffer in inflationary periods. Between October 2007 and March 2009, for example, the S&P 500 index dropped around 57%, according to GoldSilver. By contrast, gold rose by 25.5%.

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In a recession

The price of gold tends to rise in a recession as investors seek safe places to store their money. We saw this recently when the Fed predicted a recession later this year. After its March minutes were released, gold spot prices went up to $2,042.49 per ounce, approaching the record price set in 2020.

Higher gold values can help combat the decreased purchasing power a recession brings. They can also provide a valuable cash reserve if you lose your job, which becomes more likely in a recession.

Gold is a liquid investment, which means you can exchange it for cash more easily than other investments. And since its value rises in a recession, you may be able to cash it in for more precisely when you need it the most.

When stocks are falling

Stock prices can fall suddenly for many reasons, from economic conditions to bad press for a particular company. When your stock values plummet, it’s essential to have a well-diversified portfolio with lower-risk assets to offset your losses.

Gold has historically held its value despite market fluctuations and turmoil. In fact, it often tends to be worth more when stocks are faltering.

GoldSilver reports that gold prices went up during six of the eight biggest stock market crashes in the last 40 years. During the 2007 to 2009 recession, for instance, the S&P 500 dropped by 56.8%, while gold prices rose by 25.5%.

To get the most out of its stabilizing properties, experts recommend keeping 5% to 10% of your portfolio in gold.

The bottom line

There are many ways to invest in gold, from IRAs and ETFs to futures and physical gold. To determine if it’s right for you, do your homework and ask yourself these important questions. You can get started by requesting a free investment guide here.