The World Gold Council’s new research on Gold In US Recession looks at the performance of gold during recessionary periods in the US. Macro economic data, and the US Federal Reserve Bank’s swift loosening in monetary policy, underline the risk that the US economy is on the brink of, or already in, recession. There are obvious winners in terms of asset performance in a recession, like fixed-income assets, and obvious losers, like cyclical stocks. But how is gold likely to fare? Regression and correlation analysis suggest there is no relationship between changes in US GDP growth and changes in the gold price. Consequently, a US recession would not have negative implications for the gold price. This reflects the unique drivers of the gold price and underpins gold’s role as a diversifying asset, even in times of recession.

The brewing recession has so far been positive for gold on both fronts. The dollar has continued its downward trajectory, while inflation has (unusually) headed higher. US consumerprices increased at an annual rate of 4.0% in February this year, up from 2.4% just a year earlier. If these trends continue, investment demand for gold as an inflation and dollar hedge is likely to remain strong. And if the recession deepens concerns over the health of the US banking sector, demand for gold as a safe haven asset is also likely to remain robust.

In summary, statistical analysis suggests there is no relationship between changes in US GDP growth and changes in the gold price. This reflects gold’s unique and diverse demand and supply base, which as for any freely-traded good ultimately determine the price. Consequently, a US recession does not have negative implications for the gold price. The only element of demand likely to be affected by a recession is investment demand, but that in turn will depend on the “type” of recession. So far, the brewing recession has been positive for gold, as it has been accompanied by a rise in inflation and a falling dollar, which has boosted demand for gold as a dollar and inflation hedge.

For a full copy of the report please use the link : http://www.gold.org/deliver.php?file=/rs_archive/gold_in_us_recession.pdf