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Why Gold is a Safe Investment Tool in an Economic Crisis

A stack of gold bullion coins and bars

History has seen a strange and inverse relationship between gold and the stock markets. When stock markets are on the rise, gold is seen to plummet. Similarly, during an economic crisis, investors buy gold bullion bars or hold on to their gold assets to defend their portfolios against inflation.

Gold as an Investment

Gold is regarded as one of the safest investment options since the odds of it losing its value are nearly non-existent. Like every other market, the gold market may fluctuate, but its value will never drop to zero.

This is why prices for this precious commodity rise during economic crises and other tough times. This is self-evident since investors avoid investing in markets influenced by geopolitical and economic problems. Instead, they choose to invest in safer alternatives.

So, they turn towards gold, increasing its demand. Higher demand indicates a higher purchase value which skyrockets its market price.

Performance of Gold in the Pandemic

The gold market has consistently performed well in economic crises. This eccentric nature of the gold market was observed recently during the pandemic when almost all stock markets and industrial sectors collapsed.

As the stock markets crashed, the gold market rose almost 30 percent in the first quarter of 2020, reaching the record highest value of 1,943 US dollars per ounce. Before this, the highest value of gold in the international market was 1900 US dollars, which was also a product of an economic crisis back in 2011.

Reasons why Gold Prices Increase in Recession

A fall in the global economy will increase the value of gold in your possession. But what are the reasons behind this inverse relationship between gold and stocks, and how do gold investors benefit in a crisis?

Gold is Limited

One thing that’s certain about gold is that it’s unique and scarce. This is why it’s called a “precious metal” in the first place. Whenever there’s an economic collapse, investors turn towards converting their assets to gold because the value of this asset doesn’t fluctuate based on geopolitical factors.

Since gold is scarce, it can’t handle the increased demand, increasing the purchase value. Consequently, gold is sold at a higher rate, boosting its overall market value.

Rapid Cash Withdrawals

As a region gets struck by inflation, people withdraw huge amounts of cash from banks, taking money out of circulation. This forces the government to print more paper money, decreasing the currency value and pushing the country into hyperinflation.

solid gold assets in a black frame

Orion Metal Exchange is one of the top gold IRA companies, active in Los Angeles for over 50 years. Our experienced personnel have seen several economic eras and understand the value of secure silver & gold storage investment as a hedge against crises.

We also offer trusted gold bullion bars and gold bullion coins for purchase with consultations to set up precious metals IRA account.

Learn more about our services by contacting us today.

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