Gold Trading in a Slowdown

The Big Q: Red has Gold always gone up in recessions?

The Big A: No, the Gold based US Dollar was adopted in 1792, and did not make anyone any money any of the recessions or depressions from 1792 through 1969, a period of 177 yrs. There was a change in the valuation in of Gold in Y 1900, when the US Congress changed the USD's value from 24.75 grains of Gold, the amount established in 1792, to 23.22 grains, a devaluation of 6% over 108 yrs.

The US government raised the fixed price from 20.67 to 35.00 oz. in Y 1934, that action occurred during an economic expansion, not during the Depression.

In Y 1968, Gold began to trade away from the US government's fixed price. And then it slipped lower to 34.95 on January 16/19th, 1970.

So the idea that Gold goes up in recessions or depressions is wrong. It did not go up in terms of USD's in any of the 35 or so recessions or 3 depressions in over 177 yrs.

What does happen during recessions or depressions is that the value of people use as money goes up as prices for goods and services fall.

When Gold is used as money, its value in terms of goods and services goes up. But Gold cannot go up in Dollar terms when Gold and Dollars are equated.

So, no one "makes money" holding Gold under these conditions.

It is a fine point: What tends to go up relative to goods and services during economic contractions is money, and when Gold is officially money, that's how it behaves.

What folks want to know is how Gold behaves in recessions and depressions when it is not officially used as money.

In Y 1970, things changed. Investors lost interest in stocks and preferred to own Gold, for a period of 10 yrs. The same change happened again in Y 2001, and is on for 7 yrs so far.

But, recession had nothing to do with either of these periods of explosive price gain in the precious Yellow metal.

If I showed the total track record from Y 1792, Gold would show almost no movement on average during economic contractions.

But, looking at Y 1969 to now, it show lots more fluctuation. So, let's combining some history with the modern Gold era,

The modern economic era began at the end of World War II. Most economists do believe that "modern finance" began then, and that things have been "normal" since. Also, it provides results entirely from the US Federal Reserve era, making it relevant to current structural conditions.

The USA recognized 11 recessions beginning in Y 1945. Although one could make a case for different start times, we took the 15th of the starting month and the 15th of the ending month as times to record the price of gold. The results speak for themselves. Even though it is accepted throughout the Gold-Bug community that Gold rises in bad economic times, history shows that is not the case.

I have been Bullish on Gold since Y 2001, and the time to buy Gold is times of fear of inflation. That time is now IMO.

Paul A. Ebeling, Jnr

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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