MACRO MONDAY 15 ~ Gold Performance During Recessions
Macro Monday 15
Gold Performance During Recessions vs S&P500
With the U.S. Treasury Yield Curve being inverted since July 2022, many leading analysts believe that the U.S. economy is headed toward a recession in coming months. Many of the charts covered on our Macro Monday releases are signaling some recession concerns (not confirmations). With this in mind, we will start looking at assets that perform well during recessions. This starts with non-other than the obvious, Gold.
The aim of this Gold chart is to establish if gold is a good asset to hold during recession periods versus holding general market indices such as the S&P500. The obvious thought would be that it would offer a hedge of sorts but we want to back that up with the data and a visual.
We are parking any preconceived notions that gold is a safe haven risk free asset and we will focus purely on the data from the last 8 recessions. Lets see how Gold fares.
The Chart
The chart measures golds price movement from the beginning of each recession period to what the price was when Gold exited the recession period. The recession periods are the green and red shaded areas on the chart.
The measurement for the S&P500 price decline during the recession periods (in the table provided) is measured from the S&P500 entry price at the beginning of each recession period to the lowest price point during the recession period (not the exit value from the recession period as used for Gold). I used the lowest price during the recession periods as a measurement for the S&P500 as it illustrates the maximum damage to a portfolio holding the S&P500 index within a recession period.
Chart – Main Findings
1. The average length of the 8 recessions on the chart is c.11 months during which:
- The average return for Gold was +7.3% and,
- the S&P500 declined by an average of -35.6%
2. Based on the above figures in 6 out of the last 8 recessions Gold outperformed the S&P500 by 42.7% on average.
3. Recession 6 and 4 are the outliers which show that Gold decreased in value during these recession periods by -9.3% & -6.3% respectively, however Gold still performed better than the S&P500 in both cases (S&P500 declined by -12.7% & -16.3%).
Overall Golds performance during the last 8 recessions certainly provides an argument for its inclusion in investors’ portfolios. During these periods of market uncertainty and volatility it is highly probable that your Gold position will perform better than the S&P500 and afford your portfolio some protection from the potential average S&P500 price declines of 35.6%. It appears that you could expect an average return 7.3% for holding gold through a recession period (which is an average of 11 months). Whilst this is a very small gain, it is a relatively risk averse gain for these periods of great uncertainty.
It’s important to note that there are other assets to consider such as the Cash and Government Bonds both of which can pay a yield. If these yields are providing a higher real return (yield being paid minus current inflation) then they could be more attractive than an asset like Gold which is not providing a yield and which could decrease in value over the same period (such as in No. 6 and 4 above). There are also other commodities and value stocks to consider during recessionary periods. We will have a look at these alternatives in coming Macro Mondays to compare their performance to Golds during recessions.
Gold has established itself as popular among investors because it can be used as a hedge against currency devaluation, inflation, or deflation. Thus investors seek safety in the precious metals like Gold when they are concerned about losing real value from otherwise safe assets like cash and US government bonds.
I believe this chart demonstrates Gold is worth holding in any investors portfolio during periods of recession and uncertainty.
PUKA
Gold Performance During Recessions vs S&P500
With the U.S. Treasury Yield Curve being inverted since July 2022, many leading analysts believe that the U.S. economy is headed toward a recession in coming months. Many of the charts covered on our Macro Monday releases are signaling some recession concerns (not confirmations). With this in mind, we will start looking at assets that perform well during recessions. This starts with non-other than the obvious, Gold.
The aim of this Gold chart is to establish if gold is a good asset to hold during recession periods versus holding general market indices such as the S&P500. The obvious thought would be that it would offer a hedge of sorts but we want to back that up with the data and a visual.
We are parking any preconceived notions that gold is a safe haven risk free asset and we will focus purely on the data from the last 8 recessions. Lets see how Gold fares.
The Chart
The chart measures golds price movement from the beginning of each recession period to what the price was when Gold exited the recession period. The recession periods are the green and red shaded areas on the chart.
The measurement for the S&P500 price decline during the recession periods (in the table provided) is measured from the S&P500 entry price at the beginning of each recession period to the lowest price point during the recession period (not the exit value from the recession period as used for Gold). I used the lowest price during the recession periods as a measurement for the S&P500 as it illustrates the maximum damage to a portfolio holding the S&P500 index within a recession period.
Chart – Main Findings
1. The average length of the 8 recessions on the chart is c.11 months during which:
- The average return for Gold was +7.3% and,
- the S&P500 declined by an average of -35.6%
2. Based on the above figures in 6 out of the last 8 recessions Gold outperformed the S&P500 by 42.7% on average.
3. Recession 6 and 4 are the outliers which show that Gold decreased in value during these recession periods by -9.3% & -6.3% respectively, however Gold still performed better than the S&P500 in both cases (S&P500 declined by -12.7% & -16.3%).
Overall Golds performance during the last 8 recessions certainly provides an argument for its inclusion in investors’ portfolios. During these periods of market uncertainty and volatility it is highly probable that your Gold position will perform better than the S&P500 and afford your portfolio some protection from the potential average S&P500 price declines of 35.6%. It appears that you could expect an average return 7.3% for holding gold through a recession period (which is an average of 11 months). Whilst this is a very small gain, it is a relatively risk averse gain for these periods of great uncertainty.
It’s important to note that there are other assets to consider such as the Cash and Government Bonds both of which can pay a yield. If these yields are providing a higher real return (yield being paid minus current inflation) then they could be more attractive than an asset like Gold which is not providing a yield and which could decrease in value over the same period (such as in No. 6 and 4 above). There are also other commodities and value stocks to consider during recessionary periods. We will have a look at these alternatives in coming Macro Mondays to compare their performance to Golds during recessions.
Gold has established itself as popular among investors because it can be used as a hedge against currency devaluation, inflation, or deflation. Thus investors seek safety in the precious metals like Gold when they are concerned about losing real value from otherwise safe assets like cash and US government bonds.
I believe this chart demonstrates Gold is worth holding in any investors portfolio during periods of recession and uncertainty.
PUKA
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