Mar 2025

Is Gold the Ultimate Recession Hedge?

By StoneX Bullion

Gold has a reputation for being a safe haven during economic uncertainty. When other investments fall in value, gold’s price often remains stable or even increases. These features make gold an attractive asset for investors looking to protect their wealth during recessions.

But what makes gold so resilient during economic downturns? In this article, we’ll explore how gold performs during recessions, why it’s considered recession-proof, and factors that influence gold prices.

What is a recession?

A recession is a prolonged period of economic decline, usually marked by a drop in real gross domestic product (GDP), income, employment, manufacturing, and real estate. There’s no universally-accepted definition of a recession, but the term is most commonly used when a country’s GDP contracts for two consecutive quarters.

In the United States, the National Bureau of Economic Research (NBER) defines a recession as a significant decline in economic activity that spreads across the economy and lasts for several months. This definition considers multiple factors, including GDP, income, employment, and industrial output.

The global economy has experienced several major recessions since World War II, including:

1975, triggered by the oil crisis
1982, caused by high inflation and interest rates
1991, due to rising energy prices and a downturn in global trade
2008-2009, following the collapse of the U.S. housing market and subprime mortgage crisis
2020-2021, after the COVID-19 pandemic.

When a recession lasts longer than a year, it’s classified as a depression.

The tricky thing about recessions is that they’re often identified only after the damage has been done. For example, during the 2008 financial crisis, the NBER only officially declared a recession in December 2008 – a full year after the downturn had already begun. This delay leaves investors navigating uncertainty without really understanding when a recession started or when it might end.

The 4 phases of a recession

Since 1970, recessions have consistently followed a predictable pattern that can be broken down into four key phases. Let’s take a look at these four phases to understand how the market reacts during a recession.

Phase 1: The run-up

The run-up phase occurs just before a recession hits, marking the transition from an economic boom to a downturn. During this phase:

Growth slows down: The economy is still growing, but at a much slower price.
Consumer prices increase: Inflation rises as a result of excessive investment during the previous boom. With resources becoming more difficult to acquire, prices naturally increase.
Warning signs appear: Higher prices and slowing growth signal that the economy is becoming less efficient, setting the stage for a downturn.

Phase 2: Unofficial recession

This phase begins when the economy is shrinking, but before an official recession has been announced. It usually lasts about one quarter and is marked by:

Uncertainty and confusion: Economic data suggests a downturn but there’s no official confirmation from concrete data (like GDP figures).
Market hesitation: Investors are cautious because they’re not sure whether the economy is taking a short break or sliding into a full recession.

Phase 3: Official recession

This phase marks an official recession with a contracting economy. It covers the entire period of economic decline and has a few key traits:

Gold and the US dollar increase: Gold has historically gained an average of 20.2% during recessions, while the US dollar index has risen by 4.2%. Both assets are seen as safe havens that provide protection when markets fall.
Central banks cut interest rates: Central banks lower interest rates and inject money into the economy to encourage borrowing and spending.

See: Is There a Correlation Between the US Dollar and Gold Prices?

Phase 4: The final quarter

The last phase signals that the recession is almost over. During this phase:

Stock markets begin to bounce back: Investors anticipate recovery and stock prices usually start climbing before the recession officially ends.
Government and central bank actions boost confidence: By this point, drastic measures in monetary and fiscal policy have been implemented, creating a more optimistic outlook.

The effects of a recession and how gold responds

Recessions cause nearly everything to fall in value. Currencies, stock markets, real estate, and property all take a hit as confidence fades and spending slows down. Investors often pull their money out of riskier investments, like stocks and shares, to avoid further losses as the economy contracts. Cash itself also begins to lose value.

Central banks often respond by printing more money to stimulate growth, which risks fueling inflation, or in extreme cases, hyperinflation. For example, in the 1920s Germany printed excessive amounts of money after World War I, causing prices to spiral out of control. Basic goods became unaffordable and the currency’s value plummeted. This kind of economic chaos erodes trust in paper money because it can be printed endlessly – unlike gold, which has a finite supply.

This is one of the main reasons why gold tends to perform well during a crisis. Gold maintains its value when other assets experience losses. Its scarcity and inherent value give it an enduring appeal that makes it a reliable inflation hedge. At the end of a recession, those who invested in gold will have often limited their losses – or sometimes even earned a profit.

Gold also benefits when real interest rates turn negative, which happens when inflation outpaces interest rates. In these situations, savings accounts and other low-risk interest-earning investments lose value in real terms, making gold an even more attractive store of wealth.

Why is gold considered recession-proof?

Gold’s reputation as a safe haven is due to several factors:

Gold’s price increases during uncertainty

When uncertainty strikes, gold becomes more attractive to investors seeking stability. During recessions, fear drives demand for safe-haven assets, and gold fits the bill perfectly. With increased demand, prices are naturally pushed higher. The more severe the recession, and the higher inflation climbs, the better gold tends to perform.

History repeats itself

Gold’s track record during past recessions further solidifies its reputation:

During the 1973 - 1975 recession, gold surged by 87%
During the COVID-19 recession in 2020, gold went up by 28% between January and August.

Gold diversifies and protects portfolios

Another reason gold is considered recession-proof is its ability to diversify investment portfolios. Gold often moves independently of other asset classes, like stocks and bonds. This means that when the stock market takes a hit during a recession, gold often gains value, helping offset losses and reduce overall portfolio risk.

How has gold historically performed during recessions?

Historical data shows that gold tends to perform well during recessions. There are two reasons for this:

Firstly, investors seek safe-haven assets during crises, and gold has long been viewed as a reliable store of value.
Secondly, many investors anticipate that central banks will introduce monetary and fiscal stimulus to combat recessions. These measures often lead to inflation, which makes gold even more attractive as a hedge against rising prices.

The table below outlines how gold has performed during major recessions since the 1970s:

GOLD PERFORMANCE DURING MAJOR RECESSIONS
RECESSION PERIOD	GOLD PRICE AT START	GOLD PRICE AT END	PERCENTAGE CHANGE
1973 - 1975	$95.22 / oz	$178.04 / oz	+ 87.05%
1980 - 1982	$614.75 / oz	$448.00 / oz	- 27.1%
1990 - 1991	$383.73 / oz	$353.40 / oz	- 7.9%
2001	$271.19 / oz	$342.75 / oz	+ 26.4%
2007 - 2009	$670.00 / oz	$1,104.00 / oz	+ 64.8%
2020	$1,520.55 / oz	$1,895.10 / oz	+ 24.6%
2024 - 2025	$2,500.00 / oz	$3,055.48 / oz	+ 22.2%

Note, gold’s prices here are an approximation. For the most up-to-date gold prices, check our live gold price chart.

As you can see, gold rose by an average of 27.2% during these recessions. When gold did increase during a recession, its price went up by an average of 45%. All in all, gold posted gains in more than 70% of these recessions, confirming its reputation as a reliable safe haven during economic downturns.

Even though gold didn’t rise for all these recessions, it performed positively most of the time – and when it did, the returns were strong.

What affects gold prices?

Gold prices are influenced by various factors, including:

Economic slowdowns and recession fears

When economies slow down or head towards a recession, investors look for safer assets to protect their wealth. Gold becomes attractive because it retains value even when other assets, like stocks and government bonds, decline. The more severe the economic slowdown, the greater the demand for gold as a hedge against market downturns – and the more its price increases.

Inflation and currency value

Gold is widely regarded as a hedge against inflation. When the cost of living rises, paper money loses purchasing power, but gold tends to maintain – or even increase – in value. During periods of high inflation, investors often turn to gold to preserve their wealth.

In this same period, central bank policies – like lowering interest rates or increasing monetary supply – can weaken national currencies. As fiat currencies lose value, more investors are attracted to gold as a way to protect their purchasing power.

Geopolitical uncertainty

Political instability, conflicts, and global trade tensions can all impact gold prices as investors move their money into safe-haven assets. For example, recent tariff policies proposed by the U.S. government have created uncertainty in global markets and boosted demand for gold.

Central banks also increase their gold reserves during periods of geopolitical instability, further driving up demand and increasing gold prices.

Keep Reading: Why Central Banks Buy Gold

Institutional investment

Large financial institutions play a big role in shaping gold prices. A lot of the world’s top investment firms allocate a percentage of their portfolios to gold as a way to manage risk. This signals confidence in gold’s long-term value and attracts other investors to the gold market.

Learn More: What Drives the Price of Gold?

FAQs: Is gold the ultimate recession hedge?

Does gold’s price increase in a recession?

Gold has a well-documented history of performing well during recessions. Although no investment is entirely recession-proof, gold has been shown to increase in value when economic conditions worsen. Its status as a safe-haven asset makes it even more appealing during periods of financial uncertainty, and many investors use gold to protect their wealth from market downturns, inflation, and currency devaluation.

Physical gold bullion is the preferred choice in these situations. Unlike gold ETFs, gold futures, or gold mining stocks, physical gold is free from counterparty risk, meaning it’s not controlled by governments or central banks. This independence makes physical gold an even more reliable hedge.

Does silver’s price increase in a recession?

Silver performs differently from gold during recessions. Unlike gold, silver has a strong industrial demand. When economic output falls during a recession, the industrial demand for silver often declines, leading to a drop in its price.

But, like gold, silver can also benefit from increased investment during recessions, which can drive demand and see its price rise. This dual role makes silver’s price more volatile during recessions – it can fall due to reduced industrial demand but potentially rise with increased investor interest.

See: What is the Gold Silver Ratio? Gold Silver Ratio Chart

Invest in gold’s enduring value

Gold’s performance during past recessions shows us that it can be a dependable store of value in times of economic uncertainty. If you’re interested in preserving your wealth and protecting your portfolio against recessions, now is a great time to invest in the enduring value of physical gold bullion.

At StoneX Bullion, we stock a wide range of investment-grade gold, silver, platinum, and palladium bullion bars and coins from the world’s most prestigious mints. Whether you’re interested in the craftsmanship and collectible value of gold coins or the practicality and high-purity of gold bars, you’ll find an impressive range in our collection.