Real Assets
Does Gold’s Value Increase During Recessions?
Does Gold’s Value Increase During Recessions?
Gold has been traditionally considered a safe-haven asset, with many investors turning to the yellow metal during recessions and times of turmoil.
So, how does gold hold up when the economy tumbles?
The above graphic uses data from Macrotrends to highlight gold’s price movements during recessions and compares it to changes in the S&P 500.
Gold vs. the S&P 500 in Historical Recessions
Gold’s value comes from its scarcity as a precious metal, in addition to its long history as a stable medium of exchange.
Gold also has a low-to-negative correlation with the stock market, suggesting that changes in the price of gold are largely independent of how stocks are faring. As a result, gold is considered an effective diversification tool for investors who want to hedge their bets.
But has gold helped investors weather recessionary storms in the past?
| Recession year | Recession length | % change in nominal price of gold | % change in S&P 500 |
|---|---|---|---|
| 1973 | 16 months | 87% | -13.1% |
| 1980 | 6 months | -5.1% | 6.6% |
| 1981 | 16 months | 1.6% | 5.8% |
| 1990 | 8 months | 0.1% | 5.4% |
| 2001 | 8 months | 5.0% | -1.8% |
| 2007 | 18 months | 16.3% | -37.4% |
| 2020 | 2 months | 5.6% | -1.4% |
Since 1971, when the gold standard was abandoned, gold has largely seen positive price changes during recessions. And in the last three recessions since 2000, its performance has countered that of the S&P 500. While the increases in value haven’t been dramatic, they help cement gold’s position as a hedge against financial turmoil and as a store of value.
For example, when the stock market collapsed in 2007, investment demand for gold increased as investors looked for a safer option. Between 2007 and 2011, gold’s price more than doubled. Similarly, with fear and uncertainty at a high during the COVID-19 pandemic, gold-backed exchange-traded funds saw record inflows, and the price of gold reached an all-time high.
However, while gold’s price tends to rise during times of economic turmoil, it often stagnates or falls when the economy is healthy and investors seek riskier investments. As a result, it’s important for investors to consider the overall macroeconomic and geopolitical environment when looking at gold.
Gold’s Time to Shine in 2022?
The global economy has been shaking with turbulence in 2022, with consumers facing high inflation and investors seeing dismal stock market returns.
While these market conditions typically point towards rising demand for gold, that hasn’t been the case so far this year, with prices down 2% year-to-date. This is partly because of rising interest rates, which increase the opportunity cost of holding gold as investors forgo the interest income they could earn from saving accounts or bonds.
But in fact, history shows that gold often outperforms U.S. stocks and the dollar following interest rate hikes, after underperforming in the lead-up to rate hikes. Additionally, high inflation is eroding the purchasing power of each dollar, incentivizing investment in a tangible asset like gold and other hard assets.
With geopolitical uncertainty at a high and the U.S. consumer sentiment at decade-lows, will gold prove its value as a safe-haven asset in 2022?
India’s Gold Demand During Diwali
In India, gold’s significance goes far beyond investment and jewelry. The yellow metal is woven into India’s cultural history and is revered by a population of over 1.3 billion.
India is one of the largest markets for gold consumption, with jewelry, bars, and coins accounting for the bulk of annual demand. Indian gold demand typically peaks between October and December on the back of Diwali, the festival of lights, followed by thousands of weddings.
But why do Indians buy gold during Diwali?
Gold’s Significance During Diwali
Indians consider it auspicious to purchase gold—a symbol of wealth, purity, and prosperity—on many festive occasions, and Diwali is the biggest one of them.
Diwali is a five-day festival that celebrates the triumph of good over evil and light over darkness, based on Hindu mythology. For many Indians, this festival is associated with welcoming good luck, positivity, and prosperity.
People often dedicate gold purchases during Diwali to deities, especially Lakshmi, the goddess of wealth. Gold is also a popular festive and wedding gift at this time of the year.
India’s Record Gold Demand in Diwali 2021
India’s gold consumption in the second half of every year is typically higher than in the first half, coinciding with Diwali in October (beginning of Q4), according to data from the World Gold Council.
| Year | Gold Jewelry, Bar, and Coin Demand (tonnes) | YoY % Change |
|---|---|---|
| H1 2010 | 447 | N/A |
| H2 2010 | 555 | N/A |
| H1 2011 | 590 | 32.1% |
| H2 2011 | 384 | -30.8% |
| H1 2012 | 404 | -31.5% |
| H2 2012 | 510 | 32.7% |
| H1 2013 | 557 | 37.9% |
| H2 2013 | 402 | -21.3% |
| H1 2014 | 370 | -33.5% |
| H2 2014 | 463 | 15.3% |
| H1 2015 | 350 | -5.5% |
| H2 2015 | 507 | 9.5% |
| H1 2016 | 229 | -34.5% |
| H2 2016 | 437 | -13.9% |
| H1 2017 | 363 | 58.4% |
| H2 2017 | 408 | -6.6% |
| H1 2018 | 341 | -6.2% |
| H2 2018 | 420 | 2.9% |
| H1 2019 | 372 | 9.2% |
| H2 2019 | 318 | -24.2% |
| H1 2020 | 166 | -55.5% |
| H2 2020 | 281 | -11.8% |
| H1 2021 | 285 | 72.3% |
| H2 2021 | 512 | 82.3% |
| H1 2022 | 306 | 7.3% |
Following a significant drop in demand in 2020, Indians bought a record amount of gold jewelry in Q4 2021 at 265 tonnes, worth $15.3 billion at the time. Overall, gold jewelry, bar, and coin demand in H2 2021 saw an 82% increase year-over-year.
This increase was largely driven by the festive season and pent-up demand from subdued celebrations and consumption in 2020. As of the first half of 2022, gold demand was up 7.3% relative to 2021.
With Diwali celebrations in full swing, will India see another record quarter for gold demand? It remains to be seen, with gold’s festive tailwinds likely to meet economic headwinds in the form of uncertainty and higher import duties.
Real Assets
All the Metals We Mined in 2021 in One Visualization
See the 2.8 billion tonnes of metals mined in 2021.
All the Metals We Mined in 2021
“If you can’t grow it, you have to mine it” is a famous saying that encapsulates the importance of minerals and metals in the modern world.
From every building we enter to every device we use, virtually everything around us contains some amount of metal.
The above infographic visualizes all 2.8 billion tonnes of metals mined in 2021 and highlights each metal’s largest end-use using data from the United States Geological Survey (USGS).
Why Do We Mine So Much Iron Ore?
Iron ore accounted for 93% of the metals mined in 2021, with 2.6 billion tonnes extracted from the ground. It’s important to note that this is ore production, which is typically higher than metal production since metals are extracted and refined from ores.
| Metal/Ore | 2021 Mine Production (tonnes) | % of Total |
|---|---|---|
| Iron ore | 2,600,000,000 | 93.4% |
| Industrial metals | 181,579,892 | 6.5% |
| Technology and precious metals | 1,474,889 | 0.05% |
| Total | 2,783,054,781 | 100% |
With 98% of it converted into pig iron to make steel, iron ore is ubiquitous in our lives. Steel made from iron ore is used in construction, transportation, and household appliances, and it’s likely that you encounter something made out of it every day, especially if you live in a city.
Due to its key role in building infrastructure, iron ore is one of the most important materials supporting urbanization and economic growth.
Industrial Metals
Industrial metals are largely used in steelmaking, construction, chemical manufacturing, and as alloying agents. In 2021, the world mined over 181 million tonnes of these metals.
| Industrial Metals | 2021 Mine Production (tonnes) | % of Total |
|---|---|---|
| Aluminum* | 68,000,000 | 37.4% |
| Chromium | 41,000,000 | 22.6% |
| Copper | 21,000,000 | 11.6% |
| Manganese | 20,000,000 | 11.0% |
| Zinc | 13,000,000 | 7.2% |
| Titanium (mineral concentrates) | 9,000,000 | 5.0% |
| Lead | 4,300,000 | 2.4% |
| Nickel | 2,700,000 | 1.5% |
| Zirconium Minerals (Zircon) | 1,200,000 | 0.7% |
| Magnesium* | 950,000 | 0.5% |
| Strontium | 360,000 | 0.2% |
| Uranium | 48,332 | 0.03% |
| Bismuth* | 19,000 | 0.01% |
| Mercury | 2,300 | 0.001% |
| Beryllium | 260 | 0.0001% |
| Total | 181,579,892 | 100.0% |
*Represents refinery/smelter production.
Aluminum accounted for nearly 40% of industrial metal production in 2021. China was by far the largest aluminum producer, making up more than half of global production. The construction industry uses roughly 25% of annually produced aluminum, with 23% going into transportation.
Chromium is a lesser-known metal with a key role in making stainless steel stainless. In fact, stainless steel is usually composed of 10% to 30% of chromium, enhancing its strength and corrosion resistance.
Copper, manganese, and zinc round out the top five industrial metals mined in 2021, each with its own unique properties and roles in the economy.
Technology and Precious Metals
Technology metals include those that are commonly used in technology and devices. Compared to industrial metals, these are usually mined on a smaller scale and could see faster consumption growth as the world adopts new technologies.
| Technology and Precious Metals | 2021 Mine Production (tonnes) | % of Total |
|---|---|---|
| Tin | 300,000 | 20.3% |
| Molybdenum | 300,000 | 20.3% |
| Rare Earth Oxides | 280,000 | 19.0% |
| Cobalt | 170,000 | 11.5% |
| Vanadium | 110,000 | 7.5% |
| Lithium | 106,000 | 7.2% |
| Tungsten | 79,000 | 5.4% |
| Niobium | 75,000 | 5.1% |
| Silver | 24,000 | 1.6% |
| Cadmium | 24,000 | 1.6% |
| Gold | 3,000 | 0.2% |
| Tantalum | 2,100 | 0.1% |
| Indium* | 920 | 0.1% |
| Gallium | 430 | 0.03% |
| Platinum Group Metals | 380 | 0.03% |
| Rhenium | 59 | 0.004% |
| Total | 1,474,889 | 100% |
*Represents refinery/smelter production.
The major use of rhenium, one of the rarest metals, is in superalloys that are critical for engine turbine blades in aircraft and gas turbine engines. The petroleum industry uses it in rhenium-platinum catalysts to produce high-octane gasoline for vehicles.
In terms of growth, clean energy technology metals stand out. For example, lithium production has more than doubled since 2016 and is set to ride the boom in EV battery manufacturing. Over the same period, global rare earth production more than doubled, driven by the rising demand for magnets.
Indium is another interesting metal on this list. Most of it is used to make indium tin oxide, an important component of touchscreens, TV screens, and solar panels.
The Metal Mining Megatrend
The world’s material consumption has grown significantly over the last few decades, with growing economies and cities demanding more resources.
Global production of both iron ore and aluminum has more than tripled relative to the mid-1990s. Other metals, including copper and steel, have also seen significant consumption growth.
Today, economies are not only growing and urbanizing but also adopting mineral-intensive clean energy technologies, pointing towards further increases in metal production and consumption.
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