In my post, I noted:
It is a myth that gold goes up during a recession/depression. There were very specific circumstances why gold went up during the Great Depression, that, is FDR manipulated the price higher via Treasury buying, for the benefit of John Maynard Keynes and Bernard Baruch.I got the usual response by those who believe gold always goes up. These were the comments left under the post:
Gold hardly ever goes up during a recession/depression. A recession/depression is a period of general asset liquidation, including gold.
This can be understood by taking a look at the last 5 recession. (Gray shaded areas are periods of recession.)
During the 1980 recession, the price of gold collapsed.
Things were even worse in the recession that started in 1981. Gold never recovered to its pre-1980 recession levels and crashed to as low as $314.00 an ounce.
Here is what occurred during the 1990 recession.
During the 2001 recession, gold was actually up, but that was probably because gold had been declining for nearly a decade before that. From that perspective, the gold climb was not that impressive.
To be sure, gold tends to be a leader coming out of a recession, but that is at the end of a recession. But even then, the price remains lower than it was at the peak reached during the early months of a recession.
Thus, if one is expecting a recession, the last thing you generally want to do is buy gold, especially if you think it is going to be a severe recession. There are exceptions to this rule if there is stagflation, that is, a recession and accelerating price inflation, but the driver of the gold price during such a period is the inflation and not the recession.
As I said in my original post, gold should be bought at the present time aggressively but as protection against accelerating price inflation, not as a hedge against a downturn in the economy.
If you, however, think we are in the initial stages of a recession (and that the Fed is "stuck" and "can't get inflation going and interest rates will be pushed back down"). it will mean a general liquidation of assets, and gold should be sold. I consider the view that we are on the edge of a recession at present absurd. No doubt, the Fed manipulated boom will end at some point but there is no indication it is going to end soon. The indicators (which I report on in the EPJ Daily Alert) point to an acceleration in price inflation and that is the major reason to buy gold now.