Trading gold during a recession: What happened before and what’s happening now
By Paul Reid
04 May 2023
The price of gold, like any other commodity, is driven by supply and demand, interest rates, and investor behavior. However, when the economy is in turmoil, gold prices tend to behave differently. Let’s explore the behavior of gold prices before, during, and after the recession of 2008/09, as well as its behavior in 2023.
Gold before the recession
In 2000, the price of gold was around $273 per ounce, slowly rising to $681 per ounce by 2008. A weaker U.S. dollar, financial and political uncertainties, and higher demand from emerging markets like China and India fueled the price increase. During this period, gold market prices had an average annual growth rate of 15%, making it a popular choice among long-term investors looking to diversify their portfolios.
Prior to the recession, it was business as usual on the XAU charts. Volatility on gold was typically cyclical, and technical indicators were not capable of forecasting an economy-triggered rally until the price action was well underway.
Gold during the recession
After the recession hit in 2008, the stock market was in turmoil and investors turned to gold, seeking a safer investment option. Gold prices rocketed in the first year, surging by 25%, reaching a high of $1,004 per ounce, and the bullish sentiment continued for another two years, finally peaking at $1,921 per ounce in 2011.
An already trending rise (prior to recession) became an unexpected spike when the downturn kicked in. The investor world ran back to the long-standing haven asset. But will the big investors turn to gold again – or did they already?
Behavior after the recession
For six years, gold prices hovered inside a volatile $300 price range. Gold finally got wings in 2019, spiking in 2020 with the current all-time high of $2,075. The rise in price was attributed to a combination of trade tensions and geopolitical issues.
Those traders who bought early got to sell high. Those late to the gold party held, carrying the new range in the hopes of stable growth in the coming years. They are still holding. Which brings us to now.
Is gold an attractive asset to trade right now?
Traders following financial news and fundamental reports back in October 2022 saw economic trouble on the horizon and traded long at the $1600-$1700 range. Today they are enjoying the ongoing 23% rise, but is it too late to buy? Gold is close to an all-time high again, and buying now goes against the “buy low, sell high” methodology of traders.
Yes, gold may rise further in the coming months as the recession kicks in, but it’s not guaranteed. The extreme swings seen on an XAUUSD are typical, and perhaps interesting for daytraders, but long-term technical forecasting could be more challenging.
Right now, there are not many stable places to park equity. Stocks and currencies are sending mixed signals through world media, making them a risky venture. As for holding gold, sentiment is divided. At the time of writing, the Exness sentiment bar shows 60% of traders are selling, 40% are buying, which reflects the overall market sentiment quite well.
Investors looking to close an XAUUSD order on a high will effectively return their equity to fiat such as USD, at a time when USD is forecasted to fall due to economic and recessionary influences. Gold holders might not cash in soon. If stocks and currencies hit rock bottom, gold holders might sell to acquire stocks at a new low price, which will could bring gold prices down
The very best thing you can do right now is keep monitoring the charts, news, and economic reports on an hourly or daily basis, and a great way to do that is through the Exness Trade app. With breaking news, price notifications, and even a real-time sentiment bar indicating the wisdom of the crowd, you’ll have all the tools and insights needed to enjoy trading on mobile. Install the app, register with your email, and check XAUUSD right now.
This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.
Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.
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