What a recession could mean for gold prices

Through ongoing federal interest rate hikes and inflated prices for everyday goods, many Americans have been concerned about the likelihood of a recession. 

They're not the only ones — the Federal Reserve itself has signaled in recent months that a recession could be on the near horizon. In the Federal Open Market Committee meeting minutes from March, Fed staff wrote: "Given their assessment of the potential economic effects of the recent banking-sector developments, the staff's projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years."

And while the minutes of the Fed's latest meeting last week hasn't yet been released, Fed Chair Jerome Powell predicted in the press conference following the latest rate hike announcement that this month's forecast may be "broadly similar." 

If a coming recession (even a "mild" one) has you concerned about your finances, there are ways to protect yourself now. As an investor, diversifying a portion of your portfolio is a good way to spread out your risk so you're not as affected by market volatility. What's more, investing in "safe haven" assets like gold can add stability and even growth during periods of uncertainty.

Learn more about gold investment options today with a free information kit.

What a recession could mean for gold prices

Historically, gold prices have remained stable — or even experienced an upswing — during recessionary periods. 

According to data from Schroders, a global investment manager, both gold and gold equities have performed well through five of the past seven recessions going back to the early 1970s. 

"Looking at the returns from six months prior to the start of the recession to six months after the end of the recession, we can see that gold has returned 28% on average and outperformed the S&P 500 by 37%," a recent report read.

Given the historical data, it's easy to see how a coming recession could be good for gold prices. What's more, those prices are already rising. Between the value of the dollar falling thanks to stubborn inflation and a loss of confidence in the banking sector following this year's bank failures, many investors are already turning to gold and pushing its price up to near all-time highs. 

Use the map below to explore ways you can invest in gold now.

Why gold is a good investment during recessions

While gold prices may rise through a coming recession, there are a few different reasons why gold makes a good choice for investors during periods of economic downturn.

For one, it's a great way to diversify. Because of the inverse relationship gold prices tend to have with the stock market, gold is a good way to ensure your portfolio weathers market volatility that typically accompanies a recession. While you wouldn't want to put all your money into gold — it doesn't offer the same growth potential over the long term as you can get with traditional stocks and bonds — a small allocation may help you offset losses.

Another reason you may want to consider investing in gold when the economy is uncertain is its liquidity. Lenders often tighten their lending standards when times are tough, which can make it difficult for all but those with the highest credit scores to borrow money or access credit. Because gold is a highly liquid asset, it can be a resource if you need an inflow of cash. If you don't have a fully-stocked emergency fund to tap into when financial hardship hits, cashing out your gold investment could help you get the money you need without relying on very high interest loans or even predatory lenders. 

Learn more about gold investment options that may suit your investment goals with a free investors kit.

The bottom line

Gold is a secure investment that many people view as a hedge against inflation and a good diversifier for long-term investing. But during recessions, gold investors may benefit from rising gold prices as well as the security that gold can offer. We can't predict the future, but long-term investors know that periods of recession are an inevitable part of growing wealth over time. 

If you're looking for a way to add some security to your portfolio, consider whether investing in gold could be a good fit for your goals and investment plan. You can find out more about your options today with a free investment guide.