Gold prices and economic downturns: The connection investors should understand

Gold investments have been pretty popular over the last few years, but since kicking off 2025, interest has jumped even more. In fact, the average spot price of gold is now well over $2,900, a notable jump from the $2,600 average seen at the start of the year. 

Gold's ability to protect against inflation, not to mention its diversification capabilities and potential for long-term price growth, are just a few of the reasons investors flock to these investments. They're also popular in times of economic downturns or uncertainty, which can send gold prices upward during these periods. 

"As we are starting to settle into 2025, gold prices have been surging, reaching record highs due to a combination of short-term market forces and broader macroeconomic trends," says Joe Cavatoni, senior market strategist at World Gold Council.

We asked experts about that connection and where we can expect gold prices to go this year, given current economic uncertainty. 

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Gold prices and economic downturns: What investors should know

One reason gold prices tend to grow during economic downturns is that "it just needs a place to go," says Daniel Boston, founder of Preserve Gold.

"When money rotates out of stocks and bonds during a market crash and when it rotates out of cash during periods of inflation, it just needs a place to go," Boston says. "It tends to gravitate towards gold and silver, as they are considered safe-haven investments."

That "safe-haven" status often has investors eyeing precious metals while other asset classes grow more volatile — when the stock market is dropping or real estate prices are wavering, for instance. 

"Rising gold prices can signal a shift toward more cautious investment strategies, as investors seek assets with a proven track record of preserving wealth during financial and political instability," says Ben Nadelstein, head of content at Monetary Metals.

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Gold responds to Federal Reserve actions

Another reason gold prices tend to shift during challenging economic times is that the Federal Reserve tends to be more active in adjusting its monetary policies during these periods.

"When a recession occurs, the Federal Reserve takes actions that improve the price of gold," says Brett Elliott, marketing director at the American Precious Metals Exchange (APMEX). "In recessions where the Federal Reserve cut rates — which is most of them, gold prices rose."

When the Fed cuts rates, interest-earning investments become less attractive to consumers. They then look to alternative assets, like gold, to help them grow their money and safeguard their wealth. 

For reference, the Federal Reserve reduced rates three times last year. As of right now, the CME Group's FedWatch Tool projects that it may do so again later in the year — perhaps at its June, July, or September meetings.

It's often a time of reassessment

Gold also tends to do well in challenging economies because that's when consumers tend to take a step back and really evaluate their finances and investment allocation. They might look to move money to other assets or, in some cases, invest additional cash into classes that can better safeguard their money.

"Economic downturns often make investors reassess the fundamentals of their portfolios," Nadelstein explains. "Gold's long history as a safe haven and diversifying asset can make it an attractive option during times of uncertainty."

Where gold is headed next

If you're eyeing gold investments, now may be the time to buy in, as experts largely predict that gold prices will keep rising. 

"Today, it's not just the U.S Central bank that is buying gold," Boston says. "We have central banks around the world buying gold at record levels given today's economic landscape and uncertainty. If gold even does half of what it did back in the 1980s, when only the U.S Central Bank was buying gold, we could be at the beginning of a major run-up in the gold market."

Plus, with a new presidential administration comes "uncertainty around monetary, fiscal, and trade policies," Cavatoni says. That could send even more investors toward the safe haven of gold, driving up prices further. 

"You can make an easy argument for $3,500 for gold by the end of the year," Boston says. "If we get volatility in the financial markets or if inflation rears its ugly head again, this could send prices even higher."

Learn more about investing in gold in uncertain economic periods here.