Should You Buy Gold During a Banking Crisis?

Skyscraper banks in a city

May 15, 2023

The price of gold and banking crises are closely tied together. It’s quite common for investors and speculators to purchase gold during crisis periods as a way to bring stability and diversification to their financial portfolios. This naturally drives gold’s spot price skyward.

Of course, it’s impossible to predict what the future holds. You can, however, analyze current market conditions to gauge the current economic weather. If you’re forecasting stormy conditions, you might want to purchase gold in anticipation of future growth.

So why is gold investing so popular during banking crises? And when banking crises occur, should you buy, sell, or hold? Read on for answers to these questions and more.

The Connection Between Gold and Banking Crises

If you’ve been paying attention to the news, you probably heard about the failure of three United States banking institutions in March of 2023.

What you may not have noticed is that the price of gold spiked quite significantly during this period, blowing past $2,000 (a significant milestone) for the first time in over a year.

Obviously, that dramatic price increase was no coincidence. When individual and institutional investors notice economic turmoil, they frequently turn to gold. As we all know, increased demand leads to increased value.

Banking crises aren’t the only events that often trigger modern gold rushes. While gold rushes and banking collapses are certainly intertwined, many savvy investors also purchase gold during crisis periods that occur on a larger scale, such as times of recession and inflation.

What Makes Gold Such a Safe Haven?

A variety of gold bullion coins

Gold is a time-tested store of value that has performed remarkably consistently for centuries. Its purchasing power hasn’t changed significantly. An ounce of gold would buy a fine suit 100 years ago, and it still buys a fine suit today.

Gold is a rare and finite resource that will always be demanded. Beyond its breathtaking beauty that makes it irreplaceable in the jewelry industry, gold possesses unique characteristics that make it equally necessary in many other industries.

When considering the connection between gold and banking, you must understand that people trust gold. It’s a tangible asset that has true inherent worth—a sharp contrast to fiat currency, which is only valued because society assigns its value.

Paper money is just that—paper. If banking crises occurred on a massive scale, fiat currency could quickly lose its purchasing power. Gold, on the other hand, will always be highly coveted and demanded by individuals, companies, and institutions.

Timing Your Gold Investment

Buying gold during crisis periods can be a wise move if you time it right. If you’re planning on joining the action, you’ll want to monitor the performance of both gold and banking institutions.

After the price of anything skyrockets, whether it’s gold, a stock, or a cryptocurrency, it’s normal for the price to fall again after the big boom. This is called a correction.

While the corrected price will usually still be higher than it was before the boom, the correction can be a great entry point, allowing you to take advantage of future booms that may occur.

At the same time, attempting to time a gold investment can be challenging, as today’s lows could be tomorrow’s highs (and vice versa). Sometimes, the best approach is simply to buy and accept that the price might shift in either direction.

Strategic Purchasing

A man looking at charts on a computer

Instead of trying to time the perfect moment when the price of gold and a banking crisis line up, you may want to consider spreading your investment out over time. This strategy is called dollar-cost averaging.

For example, if your goal is to add 10 oz of gold to your portfolio, buying one 10 oz gold bar could put you in a volatile position, as your initial monetary investment could falter or soar depending on market shifts.

On the other hand, buying 10 one oz gold coins over the course of a month or two allows you to ride those lows and highs, keeping your spending at an average middle ground, even if your initial prediction of how gold and banking crises will play out doesn’t end up being accurate.

Whether you’re buying gold during crisis periods or not, it’s worth noting that gold’s price doesn’t fluctuate dramatically. Unless you’re purchasing a substantial quantity, there’s very little risk of severe monetary loss.

Choosing the Right Gold Investment Vehicle

If you’ve decided to add gold to your investment portfolio—whether due to a looming crisis or simply to diversify your holdings—the next step is to choose the right gold product that meets your needs and preferences.

There’s no right or wrong choice. The best gold investment really depends on your outlook and opinions. For example, if you speculate a rise in the price of gold due to banking crises on the near horizon, buying physical gold bullion bars or coins now would make sense.

If you’re thinking more long-term, you might want to consider a precious metals IRA as a way to protect your wealth and live well in your golden years, especially if you don’t trust banking institutions as a reliable way to store your retirement finances.

Besides choosing between physical gold and a gold IRA, you could also consider adding gold numismatics to your financial portfolio. Numismatics are rare, collectible coins with significant potential for growth.

Talk to a Precious Metals Specialist Today

If you have any questions about investing in gold during crisis periods, please contact us. Our friendly experts will be happy to discuss the gold and banking crisis connection and help you make an informed decision based on concrete facts.

Whether you decide to invest now or later, every portfolio benefits from diversification. And gold is a historically proven safe haven you can trust to perform especially well during economic crises. Protect the value of your assets with a time-tested store of value.

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