What is the relationship between a bad economy and precious metals?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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The relationship here is that investors will tend to want to invest in things like precious metals if they believe that the economy is going to get bad.  

If the economy is going to slump, it can be good to be invested in things that have intrinsic value.  Precious metals are like this.  They tend to hold their value well even in bad times.  This is why gold prices were extremely high in the late 1970s when inflation was high.  It is why gold prices are high today with fears that the economy will be in a semi-permanent slump and may even collapse.  The idea is that gold will continue to have value even if things like company stocks and even government bonds lose their value.

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