Market Report

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Heraeus Precious Appraisal

  • No. 26 | 15th August 2022

How do precious metals fare in recessions?

A recession is not necessarily bad news for gold. Typically, precious metal prices decline during recessions, including gold. In the 1980 recession, the gold price did decline (by 6%) but that was partly because it had just reached a record price at the start of 1980 and the Fed had finally pushed interest rates above inflation. However, in subsequent recessions the gold price has fallen less and recovered more quickly than the other metals. The gold price tends to be slightly higher at the end of a recession than at the start.

Other precious metals perform less well. In the 2007-2009 recession, precious metal prices peaked after the recession had started and hit the low points before the recession ended. Rhodium and palladium being exposed to falling automotive demand fared poorly, as did ruthenium. The fact that the metal prices were rising in the first few months of the recession is indicative of the difficulty of working out in real time when a recession has started. Economic data is a lagging indicator, which is also revised over time as more information becomes available, and recessions are typically recognised many months after they have started.

The US may already be in recession. Despite US GDP contracting for two consecutive quarters in the first half of 2022, which is considered a technical recession, economic forecasters are not predicting a recession in the US owing to the resilience of the employment figures. However, other indicators are less positive. The US Treasury yield curve has inverted which has been a reliable predictor of previous recessions. Oil price shocks have also led to recessions in the past. A strong jobs report for July was taken as a sign that the economy is robust, and with high inflation the Fed will likely continue to raise interest rates. However, more often than not the Fed raises rates ahead of a recession.

There are downside risks to prices if a recession has started or starts soon. Ruthenium, iridium, palladium and rhodium have all been at or near record prices in the last 18 months owing to supply disruptions, first in South Africa and then in Russia. Although the prices have fallen some way from their peaks, they are still significantly elevated compared to historical levels and so could see further declines. Silver is also exposed as it is a partly industrial metal and platinum prices would most likely turn lower with the other metals.

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