Gold or Bonds During Recession?

The question today is that, “Is it advisable to invest in Gold or Bonds During the time of Recession?”

Well, it really depends on which kind of inflation is this. There are basically 2 types of recession – Inflationary recession (2008) and Deflationary Recession (1929, The Great Depression).

Before 1971, the US Dollar was backed by a Gold which prevents it from hyperinflation and that’s why every recession and depression before the year 1971 were deflationary types. Because US Government couldn’t print more money and circulate in the economy. But after 1971, President Nixon of USA has removed the Gold standard and thus, Dollar became currency. Now, Dollar is backed by nothing except the full faith of US Government. Dollar is a piece of paper only without having any intrinsic value.

Thus, every recession after 1971, is inflationary type. This is because Dollar became a derivative of Debt instead of Gold after 1971. Thus, the US Government can print unlimited dollars according to the need of businesses and economy after 1971.

Now, It is better to be Lender (Bond Holder) rather than a borrower during the time of Deflation.

This is because during the time of deflation, your money will become asset. It will appreciate in its purchasing power rather than decreasing and thus it is advisable to invest in bonds during the time of deflationary recession such as that of before 1971.

Now, in the absence of gold standard, governments and central banks around the world can print unlimited money. Say for example, US Government has recently printed US $ 1.2 Trillion and pushed it into the economy. This has drive the gold prices up.

Thus, during the inflationary recession, it is advisable to invest in Gold because Currency is worthless during the time of such kind of recession. It is the gold which is the real money and that’s why it has value and not the currency notes.

So During the time of Deflationary recession Bonds & During the time of Inflationary recession (2008), Gold…!!!