Why Do So Many Investors Turn To Gold Bullion During Times Of Economic Uncertainty?

The next recession is coming. Tomorrow? Next year? Ten years from now? That’s hard to say, but many economists consider recessions to be a natural and unavoidable facet of modern capitalist society. You may be reading this as markets are sinking, and public officials are sounding the alarm that a recession is already here. Often, gold prices rise during recessions and other periods of economic uncertainty. Wondering why that is? Read on!

Examining Gold Bullion As An Investment

First, let’s look at gold bullion as a specific investment type. Gold bullion is essentially a commodity. Commodities, in turn, are generally interchangeable goods. A barrel of Brent crude oil is another example of a commodity. One barrel of Brent crude is generally changeable for another barrel of Brent crude of the same quality and quantity.

Gold bullion differs from collector’s gold coins, which typically are not commodities. These coins have value beyond the gold itself. An ancient Roman gold coin contains valuable gold, but it’s also a piece of history, so its value may greatly exceed the gold it contains.

Collector’s coins often aren’t as liquid because the coin’s value must be carefully examined, and then a buyer must be found. A collector’s coin also isn’t necessarily interchangeable with another collector’s coin. This makes collector’s coins different from bullion.

With gold bullion, a gold bar of the same weight, purity, and quality is much more readily changeable than another gold bar of the same weight, purity, and quality. Gold bars from trusted authorities may be more valuable than those from lesser-known authorities. The key difference, however, is the trust of the party selling the gold, not the gold itself.

Many investors buy and sell gold bullion based on changing economic conditions. If the economy looks hot, investors might sell gold bullion to buy stock shares, anticipating that financial markets will increase. If a market turns bearish, some folks will buy gold bullion as they see it as a safer investment.

Gold’s Unique Properties Make It A “Safe Haven” Investment

Gold has specific properties that contribute to its use as a haven asset and store of value. For one, humans have sought and admired gold throughout history. From ancient Egyptians to folks buying wedding rings today, gold has long been in demand, and history suggests it will remain in demand.

Gold’s supply is also limited. All the gold already mined in today’s world would fill up less than 4 Olympic swimming pools. Meanwhile, central banks have been known to print money at will. As the money supply expands, the value of individual dollars (or other monetary units, like francs) often declines. While more gold may be mined in the future, its supply has generally increased slowly and predictably.

Further, gold is also chemically stable, meaning it doesn’t tarnish or rust. If you buy silver right now, the silver itself could change, which could affect its value. That’s typically not true with gold. Add it all up, and gold has historically proven to be a useful “safe haven” asset during times of uncertainty.

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