Economic Crisis Historically Favoured The Gold Market

Gold has been identified as a safe haven over the years against inflation and economic crisis. But why do the investors think so? Because as the economic activities start to roll down, there are fewer investment opportunities that are better than gold. GDPs start to fall in every country and wages of citizens sink suddenly and large scale unemployment is not a surprise.

Against a falling currency and falling equity, investors keep their eyes on gold. Here are 2 examples of when gold rates went to historical heights due to economic slowdown and economic crisis. Falling currency helped the gold market.

Economic slowdown forced higher prices in 2008

As the currency market did not favour some of the investors when the crisis was going on, they tilted towards the yellow metal. Even during last year, when the economic slowdown was rampant, gold stood up as a hedge. The economic crisis is always remembered as a lucrative instrument for the gold market. After 2008, as the globe encountered an economic slowdown, gold rose considerably. In 2008, in terms of US dollar gold prices increased 5.6%. but in 2009 gold prices increased 23.4% and in 2010 the metal rose 29.5% (source: goldprice.org). The same trend is reflected in India.

Anuj Gupta, Vice President - Commodity & Currency Trade at IIFL Securities told a leading English daily, "People around the world come to know that gold is an investor's haven when other investments like equity, bond, etc. start nosediving. Till 2008, the gold price was at around Rs. 12,500 per 10 gm but after that, there was a steep rise in gold investment globally. So, the gold price has jumped from Rs. 12,500 per 10 gm in 2008 to Rs. 48,000 per 10 gm in today's retail bullion market - logging around 284% in the last 13 years."

During the US economic crisis, investors realised again that their equity and currency can fall suddenly, overnight and could leave them even bankrupt. But investing in gold portfolios like gold ETF, gold bonds will always save them from these kinds of crises.

Economic crisis due to pandemic helped in 2020

A similar trend has been followed in the last year, in 2020 when gold prices jumped at a historical level at 24.6% than its earlier year. Compromised economic activities and an unfavourable labour market due to the pandemic pushed investors into gold. As the Indian government kept bond yield low because of the pandemic, gold was a lucrative investment in India. Up-scaling gold rates in the international market did not stop Indians from buying gold, rather they invested more expecting the prices to rise more in future. Investment in gold should always be considered in terms of long term gains.

However, before 2020, the gold prices were seeing moderate growth like 18.9% in 2021. The prices also saw a yearly downfall of prices during 2013-2015 when no major economic threat was arriving. The prices fell 28.3% and 10.4% consecutively in 2013 and 2015 in terms of the US dollar - according to data released by goldprice.org.

As the gold rates started to fall in the international market again due to up-scaling economic activities, it is a good time for investing in gold. Today on 16th August the international gold prices on MCX (FUTCOM, 5th October - expiry date) is standing at Rs. 46848 till 12.15 pm (IST) with a 0.21% downfall and Rs. 100 sink since earlier trading day. Investors should think about this precious metal now for long term gains.