Investing in Gold Amid an Economic Contraction

Shallon Weis |

For nearly 50 years, gold has been on a bullish ride. Since it's inception in the bull market in 1971, gold has climbed in value and been a safe haven for investors looking to diversify their portfolios and hedge against inflation. 

While both stocks and bonds have, on average, outperformed gold's price increase, over shorter-term time spans, gold could come out ahead.

Presidential Policies Impact on Gold

When President Richard Nixon decreed in 1971 that the U.S. would no longer buy or sell gold or enforce a $35/oz. price it started gold's bullish ride. (Investors who bought a one-ounce coin then experienced an appreciation of almost 50 times its cost.)

But the impact of the U.S. fiscal policies and the concept of a balanced federal budget feed gold's gains along with political power shifts.

Enter the Trump Era 

Gold investors saw the promise of Trump's policies like cutting taxes and paper over the revenue shortfall with more federal debt and his pressure on the Federal Reserve to keep interest rates low enough to accommodate increased Treasury borrowing and bolster the U.S. economy to higher output and employment. 

This (negative interest rates) all fueled gold to higher prices. Trump's policies have impacted gold's bull market - even as the sharp stock market plummet occurred when the pandemic hit both U.S. and global markets. As the S&P 500 fell and gave all its gains in the Trump era back, gold fell from being ahead 50% to still remained 30% ahead. 

Since Congress reacted with new policies to save the economy and American jobs, gold continued to tick higher.  

Teetering on Trump

Will gold continue to win over the S&P 500? The true test is how the U.S. recovers from the contraction (the worst since the 1930's Great Depression) and whether Trump's promised plans for infrastructure improvements will be realized in the coming months. 

In the end, gold still presents favorable rewards according to investment analysts.