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Gold is a safe bet during recession: WGC
By Commodity Online
April 18, 2008 17:45 IST
In recessionary periods, 'defensive stocks like biotech or food stuffs are unaffected while it is beneficial for gold as it is seen as a dollar and inflation hedge, according to Natalie Dempster of World Gold Council.
Even if the US slides into recession, it wouldn't have negative implications for the price of gold, she said.
Recessions can be bad for commodity prices, as consumer and business confidence falls, demand for goods and services is cut, weighing on demand for raw materials and depressing prices.
During periods of slowing economic growth cyclical stocks - such as car manufacturers and homebuilders and financials - tend to under-perform,
Natalie said.
Industrial demand for gold is a relatively small chunk of total demand at 14 per cent, in stark contrast to base metals and even other precious metals, where the vast majority of demand comes from industry.
The only element of demand for gold likely to be affected by a recession is investment demand, "but that in turn will depend on the 'type' of recession,".
If the dollar continues its downward trajectory, and inflation, unusually, heads even higher, "investment demand for gold as an inflation and dollar hedge is likely to remain strong," Dempster said.
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