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Gold & Recessions: What to Know This Time Around

Gold & Recessions: What to Know This Time Around

Posted September 15, 2020 at 11:00 am
State Street Global Advisors

By: Maxwell Gold, CFAHead of Gold Strategy

This post was written with contributions from the SPDR Gold Strategy Team: George Milling-Stanley, Chief Gold Strategist, and Diego Andrade, Senior Gold Strategist.

  • Gold has historically performed better than US stocks, bonds, and the dollar have during recessions for approximately the past 50 years. See Figure 1 below.
  • As the US economy continues on its path toward recovery, gold shows signs of remaining strong and may play a key role in managing portfolios through ongoing uncertainty. 
  • A US recovery boding persistent low rates and accommodative policies will likely continue to benefit gold.

With GDP posting a record low of -31.7% for Q2 2020,1 the United States officially entered its first economic recession in over a decade. Gold is popularly associated with providing a potential hedge during economic downturns, so it’s not much of a surprise that it has risen 27% year to date and is on track to have its best year since 2010.2 Given continued uncertainty during this current recession, it may pay to not only focus on gold’s historical track record during these phases, but also to evaluate the key drivers supporting gold’s current outlook,3 which remain strong – even against the potential for a US economic recovery.

Gold Leads in the Recession Procession

The investing merit of gold during recessions is a common association, and as Figure 1 highlights, this is well earned. Since 1971, when gold began freely trading in the post-Bretton Woods era, the US has experienced seven economic recessions. During these periods, gold averaged a 20.19% return, which has led the way compared with other major US assets – including US stocks, Treasury bonds, corporate bonds, and the US dollar. Additionally, gold managed to provide positive returns and outperform broad commodities in all but one of those periods (1990-1991).

gold versus other major us asset classes during economic recessions

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1 Bloomberg Finance L.P, Bureau of Economic Analysis. Data as of 6/30/2020.
2 Bloomberg Finance L.P., State Street Global Advisors. Year-to-date return as of 8/27/2020. Gold price return was 29.6% in 2010.
4 As measured by Conference Board LEI Index. Four phases of business cycle (recession, recovery, expansion, slowdown) were measured based on the direction and magnitude of changes of the Conference Board Leading Economic Indicator (LEI) Index. Recession: LEI Index declines to a trough at an accelerating pace; Recovery: LEI Index rebounds from a trough but below long-term trends; Expansion: LEI Index YoY changes are positive and above long-term trends; Slowdown: LEI Index YoY changes pass the peak and begin moderating.


Bloomberg Barclays US Corporate Bond Index

The Bloomberg Barclays US Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market.

Bloomberg Barclays US Treasury Index

The Bloomberg Barclays US Treasury Index measures US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury.

Bretton Woods Agreement

An agreement in 1944 that established a gold exchange standard for Western European nations and Japan once World War II was over. Under the pact, respective currencies were pegged to the US dollar and central banks could exchange dollar holdings into gold at the official exchange rate of $35 per ounce. In 1971, US President Richard Nixon terminated convertibility of the US dollar into gold, which marked the beginning of the floating fiat currency structure that remains in place today. The agreement is so named because it was negotiated in Bretton Woods, New Hampshire.

Gross Domestic Product or GDP

The monetary value of all the finished goods and services produced within a country’s borders in a specific time period.

Leading Economic Indicators (LEI)

Leading indicators include economic variables that tend to move before changes in the overall economy. These indicators give a sense of the future state of an economy.


A contraction in economic activity as profits decline and consumer expectations begin to bottom out that typically leads to accommodative monetary policy. Recessions have been characterized as at least two consecutive quarters of economic contraction, but definitions vary, and the concept is subjective.

S&P GSCI Total Return Index

The S&P GSCI Total Return Index in USD is widely recognized as the leading measure of general commodity price movements and inflation in the world economy. Index is calculated primarily on a world production weighted basis comprised of the principal physical commodities futures contracts.

S&P 500 Total Return Index

The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

US Dollar Index

The US Dollar Index (DXY) measures the performance of the US Dollar against a basket of currencies: the euro (EUR), the Japanese yen (JPY), the British pound sterling (GBP), the Canadian dollar (CAD), the Swiss Franc (CHF) and the Swedish krona (SEK).

Originally Posted on September 10, 2020 – Gold & Recessions: What to Know This Time Around


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