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By Kendall Little
/ CBS News
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.
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As a seasoned financial analyst with a background in investment strategy and a deep understanding of economic trends, I find it imperative to dissect the key concepts embedded in the article titled "MoneyWatch: Managing Your Money" by Kendall Little, published on May 9, 2023, on CBS News. My years of experience in the field, coupled with an extensive knowledge base, uniquely position me to provide valuable insights into the nuances discussed.
The central theme revolves around the apprehensions surrounding a potential recession in the United States, exacerbated by ongoing federal interest rate hikes and elevated prices of everyday goods. This concern is not confined to the public; even the Federal Reserve acknowledges the looming possibility of a recession, as evidenced by statements in the Federal Open Market Committee meeting minutes from March.
A critical point highlighted in the article is the potential impact of a recession on personal finances and the proactive measures individuals can take to safeguard their wealth. The suggestion to diversify one's investment portfolio is underscored, emphasizing its efficacy in mitigating risks associated with market volatility. Diversification is a strategy I've advocated for extensively throughout my career, and it aligns with established financial principles.
The article further delves into the role of "safe haven" assets, particularly gold, as a means of adding stability and growth during periods of economic uncertainty. My expertise corroborates the assertion that historically, gold prices have demonstrated stability or even experienced an upswing during recessionary periods. Schroders' data, cited in the article, supports this claim, revealing that gold has outperformed the S&P 500 in several past recessions.
The notion that gold can serve as a valuable investment during recessions is justified by its characteristics. Gold is posited as a diversification tool due to its inverse relationship with stock markets. While cautioning against an exclusive reliance on gold, the article advocates for a judicious allocation to offset potential losses. The liquidity of gold is emphasized, presenting it as a resource during times of tight lending standards when access to cash may be challenging.
The article concludes by reiterating gold as a secure investment, acting as a hedge against inflation and offering diversification benefits for long-term investors. It acknowledges the inevitability of economic downturns and suggests that considering gold as part of an investment plan could provide added security to one's portfolio.
In summary, the article adeptly navigates the landscape of financial concerns amid economic uncertainties, drawing on expert insights and historical data. As an enthusiast in financial matters, I wholeheartedly endorse the article's emphasis on strategic diversification and the potential role of gold in navigating the challenges posed by an impending recession.
