Unlike other commodities, the supply and demand levels of gold are relatively stable, so supply and demand are not the main influencing factors of gold prices. Instead, due to its financial investment properties, macroeconomic factors have a greater impact on the price of gold, such as real interest rates, inflation levels, the US dollar index, and risk events.
In recent years, economic recession has frequently been a key term in the financial field. What is the relationship between it and the price of gold? Adrian Day, Chairman and CEO of Adrian Day Asset Management, stated that economic recession is beneficial for both gold and gold stocks.
Data since the 1960s shows that historically, gold prices have risen every time there has been an economic recession (with only one exception). For example, during the economic recessions in 1968-1970, 1973-1975, and 1978-1980, the price of gold rose significantly. Similarly, after the global economy entered a recession following 2001, the United States continuously lowered the federal funds rate, leading investors to return to the gold market, and the price of gold underwent a crucial turning point.
Furthermore, Day stated that during most economic recessions, gold stocks also rose, with gains sometimes reaching as high as 200%. The conclusion is very clear: it is essential to hold gold, especially gold stocks with greater price elasticity and upward potential during an economic recession.
However, Day also pointed out that the market in the past two years has been somewhat abnormal, with only gold showing strength among gold and silver assets (including gold and silver coins and stocks). For most cyclical stocks, when commodity prices rise, companies’ operating performance improves, and stock prices also begin to rise. However, during this period, gold stocks have clearly become an exception. The reason for this may be that the market is concerned that the rise in gold prices will not translate into corporate profits.
In contrast, the current price of gold is supported by the large-scale purchases of gold by central banks worldwide, resulting in a deviation between the prices of gold stocks and gold. In addition, in Day’s view, it is without a doubt that the Federal Reserve will cut interest rates this year. Furthermore, if the price of gold rises to $2,100 per ounce, investors will quickly return to the gold market for trading.
