How gold behaves in deflation
Contrary to conventional wisdom, gold has historically done fine in deflationary shocks.
Investors assume gold only works in inflation. History disagrees. In the deflationary crises of 1930–1933 and 2008–2009, gold rose in most major currencies.
Why
Deflation shocks are typically accompanied by banking system stress, currency devaluation, and aggressive monetary response. Gold gains as counterparty risk rises and as investors anticipate the inflationary aftermath.
The lesson
Gold is less an inflation hedge than a monetary-regime hedge. It performs when the credibility of currency or the banking system is in question — in either direction.
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