Great Recession and Gold

The Great Recession was a recession that in the U.S. lasted officially from December 2007 to June 2009.

The event was the deepest economic downturn since the Great Depression, triggered by the erroneous Fed’s monetary policy and the government’s economic policies that led to the housing bubble. When it burst, it caused the global financial crisis.

The Great Recession boosted the price of gold, although it declined in the very aftermath of Lehman Brothers' bankruptcy, probably due to the forced sales to raise cash. However, it quickly rebounded and ended 2008 in positive territory, and in 2009 and later, it shined, outperforming many other assets. From October 2008 to September 2011, gold surged 166%. The chart below compares gold's historical behavior to that of the S&P 500 Index; the divergence after the start of the crisis is clear.

It should not be surprising, as gold prices act as an indicator of the health of the economy. In times of crisis and elevated risk aversion, many investors turn to gold, the ultimate safe haven, to protect their capital. When the economy recovered, gold lost its appeal as insurance against the breakdown of the monetary system based on fiat currencies, and the gold bull market ended in 2012.