As investors’ view of the economy dims, they’re turning to an age-old financial friend: gold.
Gold prices have been climbing this year and are up more than 20 percent over the last six months as the Federal Reserve has raised interest rates and fears of a recession grow. Investors are using gold and tech stocks as a hedge, according to a report by strategists at JPMorgan Chase.
“The U.S. banking crisis has increased the demand for gold as a proxy for lower real rates as well as a hedge against a ‘catastrophic scenario,’” the strategists wrote. They also noted that institutional investors turned into gold, while retail investors are turning to Bitcoin. Additionally, the authors say investors are moving back into technology stocks, pushing those equities higher.
Recent events in banking have raised concerns for the health of the industry. Federal regulators said in reports on the collapses of Silicon Valley Bank and Signature Bank that the two institutions had flaws in their management, and that the agency itself didn’t conduct crucial oversight, according to CNN.
Meanwhile, JPMorgan Chase itself bought First Republic Bank assets from federal regulators in what is now the second-largest bank failure in U.S. history, the Associated Press reported. When commenting on the deal, CNBC quoted a Treasury Department spokesperson as saying: “The banking system remains sound and resilient, and Americans should feel confident in the safety of their deposits and the ability of the banking system to fulfill its essential function of providing credit to businesses and families.”
Throughout economic ups and downs, investors have purchased gold due to worries about the falling value of the dollar, the New York Times has reported. However, some experts have cautioned that it may not be as safe of an investment as people believe it to be.
“People understand gold’s intrinsic value,” Katherine M. Porter, an associate professor of law and a bankruptcy specialist at the University of Iowa, told the Times. “But because it’s beautiful and they can hold it in their hands, they may not perceive how volatile, like all traded commodities, gold is.”
Luckily, we recently received good news about the economy: The Labor Department reported Friday that employers added 253,000 jobs in April. As the Times wrote: “The labor market is still defying gravity.”