This post was written with contributions from the SPDR Gold Strategy Team: George Milling-Stanley, Chief Gold Strategist, and Diego Andrade, Senior Gold Strategist.
With GDP posting a record low of -31.7% for Q2 2020,1 the United States officially entered its first economic recession in over a decade. Gold is popularly associated with providing a potential hedge during economic downturns, so it’s not much of a surprise that it has risen 27% year to date and is on track to have its best year since 2010.2 Given continued uncertainty during this current recession, it may pay to not only focus on gold’s historical track record during these phases, but also to evaluate the key drivers supporting gold’s current outlook,3 which remain strong – even against the potential for a US economic recovery.
Gold Leads in the Recession Procession
The investing merit of gold during recessions is a common association, and as Figure 1 highlights, this is well earned. Since 1971, when gold began freely trading in the post-Bretton Woods era, the US has experienced seven economic recessions. During these periods, gold averaged a 20.19% return, which has led the way compared with other major US assets – including US stocks, Treasury bonds, corporate bonds, and the US dollar. Additionally, gold managed to provide positive returns and outperform broad commodities in all but one of those periods (1990-1991).