Do Gold Prices Go Up in a Recession?

With ongoing economic volatility, many Americans are considering one of the oldest forms of investment: gold. Whether it’s a smart move depends largely on your individual portfolio and financial goals. But what about during a recession, does gold still hold up? Thanks to its long-standing reputation as a store of value, many investors view gold as a safe haven during economic downturns. But is it the right choice for everyone? Let’s take a closer look.

For help diversifying your portfolio with precious metals, consider working with a financial advisor for guidance.

Gold and Recessions

Gold has long been admired for its beauty and historical significance, but when it comes to serving as a recession-proof investment, the story is more nuanced.

While gold does offer unique advantages, such as its status as a tangible asset and its track record as a store of value, it shouldn’t be viewed as a guaranteed safeguard during economic downturns. Holding gold can add diversification to your portfolio, but relying on it too heavily may expose you to unnecessary risk without delivering consistent returns.

Does Gold Always Rise During a Recession?

Historically, gold has tended to perform well during periods of high inflation or economic uncertainty. This is because gold often moves inversely to traditional financial markets. When the value of currency falls or stocks decline, investors frequently turn to gold as a safe haven, driving up its price.

However, this pattern is not guaranteed. Gold’s performance depends heavily on investor sentiment. If confidence in gold declines — or if investors shift their focus to other assets like cash, bonds or even cryptocurrencies — its value can stagnate or drop, even during a recession.

At the end of the day, gold’s price is driven largely by perception and demand. If investors believe gold holds value, demand rises. But if sentiment shifts, the price can fall just as easily. In other words, gold is not immune to market psychology.

Gold can be a valuable component of a well-balanced portfolio, especially during uncertain times. But like any asset, it carries risks. Using gold as a hedge, rather than a primary investment, can help protect your wealth without overexposing you to the fluctuations of a single commodity.

You can also consider working with a financial advisor to evaluate how gold fits into your broader investment strategy, particularly during periods of market stress.

Gold Price Correlations: A Closer Look

A stock chart overlaid on paper currency.

Gold has multiple drivers and factors that affect the price. However, not all of those drivers are direct correlations. The only two correlation that will definitely move the price up or down is supply and demand. Factors such as inflation and currency devaluation play their part, but even their base correlation rests with supply and demand:

Supply: Gold is a finite resource, there will come a time when what’s available in the market will be all there is. However, what keeps the price somewhat affordable is the fact that gold, unlike oil, is not consumable. Any gold that was mined in the past is, for the most part, still in circulation whether in the open market or in someone’s jewelry box.
Demand: Gold remains to be a status symbol as well as a monetary symbol. Demand fluctuates but will eventually outweigh supply. As inflation increases or the value of the U.S dollar fluctuates, the interest in purchasing gold typically fluctuates as well. This leads to a price change.

3 Common Misconceptions About Gold

Gold has a long-standing reputation as a stable asset that can always be trusted to hold its value and hedge against volatile economic performances. But one could argue that its history and value shifts don’t make it as consistent as one might think.

Here are three common misconceptions that the average investor should be aware of:

Misconception No. 1: When Inflation Rises, So Does The Price of Gold

Reality: Gold can still have poor performance during inflationary periods. In the 1980s for example, inflation rose around 6.5% yet gold prices did not increase. In fact, gold prices over that four-year period fell 10%. This took place again between 1988-1991 when gold prices dropped 7.6% during a 4.6% inflationary period.

This isn’t to say that the price of gold typically doesn’t rise during inflation, only that it’s not a hard-set fact. Investors need the entire economic picture to make a decision about how gold will perform.

Misconception No. 2: Gold Always Works Well As A Hedge Against Inflation

Reality: Gold has mixed reviews and a mixed track record to match. A great hedge against inflation is anything that is used to offset a drop in currency prices by providing stability. For example, residential real estate. Residential real estate holds its value and even gains value during market fluctuations primarily because the economy will always have a strong need for residential property.

As discussed above, gold is neither a tool that can be put to use nor is it consumable. So unlike real estate, which gains its value through persistent demand, or oil, which gains its value through being a consumable finite energy resource, gold is based on unstable attributes. The bottom line stands while gold has its virtues, it’s ultimately unreliable.

Misconception No. 3: Gold Is Always A Smart Option For Your Portfolio

Reality: Gold, unlike real estate or stocks, is a “dead asset” — meaning it generates interest. Also, gold can be highly volatile, as we’ve discussed previously. These two qualities make it unfit in terms of “always” being a smart investment.

For example, those trying to save and invest for retirement need a primarily stable portfolio with minimal risk and predictable returns. Gold’s cyclical performance makes it a poor choice in this instance.

3 Reasons Investors Still Choose Gold

Despite some common misconceptions about gold’s consistency and performance, it remains a popular asset among investors worldwide. While gold may not always behave as a perfect hedge against inflation or deliver steady returns, it still holds strategic value in many portfolios. Its historical role, global appeal, and ability to offer diversification continue to make it a worthwhile consideration — especially during periods of market uncertainty. Here are three key reasons why investors continue to choose gold.

1. Diversification Benefits

Even with its mixed track record, gold is often seen as a way to diversify a portfolio. It tends to move independently of stocks and bonds, and in some cases, in the opposite direction. This non-correlation can help reduce overall portfolio volatility. For investors who want to avoid putting all their eggs in one basket, gold can act as a balancing asset, especially during market uncertainty or geopolitical instability.

2. Tangible Asset With Global Demand

Unlike paper investments, gold is a physical, tangible asset. It doesn’t rely on a third party to maintain value, which makes it attractive to investors worried about systemic risk (e.g., banking crises, fiat currency instability). Gold also has universal recognition and demand across cultures and countries, making it a globally accepted store of value, even when confidence in traditional financial systems declines.

3. Psychological and Historical Appeal

Gold carries centuries of symbolic and economic significance. Even if it doesn’t always outperform during inflation or recessions, investors often feel a sense of security owning an asset that has weathered the rise and fall of economies over time. This psychological comfort — especially during periods of market stress — continues to make gold appealing to conservative investors or those who prioritize wealth preservation.

Bottom Line

A couple greet their financial advisor, preparing to ask about investing in gold.

Gold is not consistent enough to be a recession-proof asset. Gold can be used for diversification to round out a portfolio but only in calculated amounts. Thinking that gold can protect you every time a recession hits is an overly optimistic outlook.

Tips for Investing

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Counter-cyclical assets are an incredibly important part of any portfolio. If you have everything invested in just one asset class, you set yourself up for poor market downturns. When assessing your portfolio, it’s important to understand the types of risk that you will face.