What happens to gold during a financial crisis?

Gold holds a unique position in the financial markets. During times of economic turmoil, interest in gold increases because it is seen as a stable store of value.

While stock markets can react violently to uncertainty, the gold price often continues to rise—even in difficult economic times. More and more investors seek protection and shift their wealth into physical assets, increasing demand for gold.

The role of gold during economic uncertainty

During periods of economic decline, many assets lose value. Stock markets fall, currencies weaken, and bond yields decrease. Gold, on the other hand, maintains its appeal because it is not dependent on a counterparty.

Banks can fail and governments can introduce emergency measures, but the intrinsic value of gold remains. This makes gold an attractive option for investors seeking stability.

Gold’s scarcity reinforces its role as a store of value. Central banks hold large gold reserves as protection against monetary policy risks and market volatility. This underscores the confidence in gold as a way to preserve purchasing power, even in uncertain times.

Why gold is considered a safe haven

When economic tensions rise, investors look for alternatives to traditional investments. Gold functions as an independent asset, not tied to a central authority or financial system. The precious metal offers protection against inflation and currency devaluation, which is especially relevant during periods of rising debt and low interest rates.

Because gold is historically seen as a reliable investment, its price often remains high in difficult economic times. This makes gold attractive to both private investors and institutional parties seeking to spread their risks.

Historical examples of gold during financial crises

During the Great Depression, the gold price initially remained stable because many countries adhered to the gold standard. When the U.S. abandoned it in 1933, the gold price rose from $20.67 to $35 per ounce. In the 1970s, the gold price surged significantly, reaching a peak of about $840 per ounce in 1980, driven by high inflation and economic uncertainty.

During the financial crisis of 2008, the gold price temporarily fell by about 30% between March and October but quickly recovered and hit new record highs in 2009.

From the second half of 2009, the gold price climbed above $1,000 per ounce, eventually peaking at nearly $1,900 per ounce in September 2011.

How do gold prices respond to market fluctuations?

Gold price movements depend on various factors, including inflation, interest rates, and demand from central banks and investors. When inflation rises, gold becomes more attractive because it retains purchasing power. Falling interest rates make gold more appealing since it doesn’t yield interest and stays competitive with other investments.

Market sentiment also plays a major role in gold price movements. During increasing geopolitical tensions or economic uncertainty, investors seek safety, which drives up demand for gold. During economic recovery, the gold price may decline temporarily, as investors shift to higher-risk assets like stocks, which can offer higher returns but also pose greater losses.

The advantages of gold as an investment during crises

Gold offers several benefits in times of financial uncertainty. Its liquidity ensures that it can be easily traded. Unlike real estate or certain business investments, gold is easily sold worldwide at market prices.

Additionally, gold is independent of corporate profits or government policy. While stocks and bonds are sensitive to economic developments and interest rate changes, gold consistently retains value. This makes investing in gold and silver a reliable way to protect wealth against volatility and loss of value.

What are the disadvantages of investing in gold during crises?

Although gold has many advantages, it also has limitations. The price of gold fluctuates significantly based on market sentiment. This means investors who enter at the wrong time may incur short-term losses.

Unlike stocks or bonds, gold does not generate dividends or interest. Investors focused on capital growth need to account for this and combine gold with other investments.

In addition, transaction and storage costs play a role. Physical gold requires secure storage, which involves costs. You can use the services of our partner Edelmetaal Beheer Nederland, which offers secure storage facilities in Rotterdam, the Netherlands, and Zurich, Switzerland.

ETFs or gold-related investment funds offer an alternative but carry counterparty risks. These investments are managed by third parties, meaning you have no direct control over the gold or its storage. You also face business risk, as the company managing your gold investment could go bankrupt.

How can you benefit from gold investments during a financial crisis?

Gold plays several roles in an investment strategy. Physical gold, such as gold coins and bars, offers direct ownership and is easy to trade. Gold ETFs and mutual funds allow you to invest without physical storage. You can also invest in mining stocks, which offer the potential for higher returns.

Buying gold gradually, which is also possible at The Silver Mountain, helps smooth out price fluctuations and stabilize the average purchase price. By allocating about 20% of a portfolio to gold, investors are better prepared for economic uncertainty and inflation.

Do you have questions about investing in gold? Contact us for expert advice or view our selection of gold coins and gold bars.

Disclaimer: The Silver Mountain does not provide investment advice and this article should not be considered as such. Past performance is no guarantee of future results.