Gold – Alternative Investment during the Bad Time?

I often ask if GOLD is a good hedge for a bad time? It is true that gold always goes up in recessions and depressions?

The best way to answer that is to look at the data. Data never lies unless we decidedly to torture it hard enough!

To give a fair and balance representation, we track the data as far back as the end of World War II, when most people think that ‘modern finance’ began at that time. So our study fits the norm that most economists use.

Recession Period	Length of Months	Total Return	Total Return with 2008 Transaction Costs
Feb 1945-Oct 1945	8	0.0%	-4.0%
Nov 1948-Oct 1949	11	0.0%	-4.0%
Jul 1953–May 1954	10	0.0%	-4.0%
Aug 1957–Apr 1958	8	0.0%	-4.0%
Apr1960-Feb1961	10	0.0%	-4.0%
Dec1969-Nov1970	11	7.36%	3.36%
Nov1973-Mar1975	16	94.81%	90.81%
Jan1980—Jul1980	6	-9.43%	-13.43%
Jul1981-Nov1982	16	-2.18%	-6.18%
Jul1990-Mar1991	8	0.66%	-3.34%
Mar2001-Nov2001	8	5.63%	1.63%
	Average:-	8.80%	4.80%
	Median:-	0.00%	-4.00%

Table above shows the performance of gold during the 11 officially recognized recessions begin in 1945.

The results speak for themselves. Even though it is acceptable throughout most of the gold-bug community that gold rises in bad economic times, our findings show that such is not the case. The average return with 2008 transaction costs since Feb 1945 was 4.8%, of which result was skewed by the returns seen in November 1973-March 1975 period. If that being adjusted, the returns look far less appetizing.

The idea that gold reliably rises during recessions and depressions is wrong; in fact, like most such passionately accepted lore, it’s backwards.