Investors in gold and silver choose to buy precious metals to protect their money during recessions and other financial crises. Is it, however, worthwhile? Is it beneficial to diversify your portfolio by investing 10% to 15% of your money in gold and silver bars and coins?
The stock market follows a cyclical pattern. They go through periods of expansion and recession on a regular basis, about every 10-15 years. Periods of recession or depression can be light or severe, depending on the conditions. The collapse of mortgage markets in 2008, combined with issues with European bank viability, triggered a global recession that required years of austerity to recover from, notably in Europe.
The S&P 500 is one of the greatest ways to track a market during a recession. This is an excellent indicator of how organizations are functioning across a variety of industries. The following are the outcomes of eight different recessions since the US Dollar was decoupled from the gold standard.
1. Keep in mind that the length of the crash makes no difference. The value of gold has climbed dramatically in 75% of all market downturns. As a result, it’s reasonable to conclude that storing gold during a downturn is a good choice.
Gold’s value has historically been dragged down at the onset of a recession; however, it is reasonable to predict that it will bounce back and gain in value during the recession. According to history, this may be a terrific time to buy.
2. Gold’s sole significant selloff (-46% in the early 1980s) occurred shortly after the world’s largest bull market. Between 1970 and 1980, gold prices increased by approximately 2,300 percent. As a result, it’s not surprising that it fell along with the rest of the stock market at the time.
3. During stock market breakdowns, silver did not fare well. Silver only rose during one of the S&P selloffs (and remained flat in a second one). This is most likely due to silver’s widespread industrial use (roughly 56 percent of total distribution). As a result, a drop in industrial production can lead to a drop in demand for silver, as well as a drop in price. It’s worth noting, though, that silver prices fell much less than the S&P averages. It’s also worth noting that silver’s biggest gain (+15 percent) occurred during its longest bull market ever in the 1970s.
When it comes to investing in silver bullion, the price response to a recession is determined by whether the precious metal is in a bull market at the time of the recession.
Negative correlation is the main reason gold is more resilient during stock market crises. When one rises, the other falls.
Fear is common when the stock market falls, and investors seek safety in gold.
When the stock market fails, what happens to silver?
To help address the above issues, I looked at previous stock market crashes and measured gold and silver’s performance during each one to see if there were any patterns. The table below depicts the S&P 500’s eight largest drops since 1976, as well as how gold and silver prices responded to each.
In most cases, the gold price rose during the biggest stock market crashes.
Does gold rise in the event of a stock market crash? “Yes!” has been the standard response in recent years. It’s worth noting that this was true whether the crash was brief or lasted a few years. Gold even rose after the worst fall of all: a 56 percent drop in the early 2000s that lasted two years. It seems obvious that we should not expect gold to fall in a stock market catastrophe – the reverse has happened far more frequently.
Investors shouldn’t panic over an initial drop in gold prices.
Gold did decrease during the initial shock of the 2008 financial crisis, as you may know. This recent, albeit significant, occurrence may explain why many investors believe gold would fall in tandem with the stock market. While the S&P 500 continued to fall, gold rose 5.5 percent to conclude the year. Gold increased by more than 25% during the 18-month stock market crash. The lesson here is that, even if gold loses initially after a stock market crash, it is not necessarily doomed. In fact, history suggests that it could be an excellent time to buy.
Gold’s only significant selloff (46% in the early 1980s) occurred just after its biggest bull market in modern history.
From its low point in 1970 to its high point in 1980, gold increased by more than 2,300 percent. It’s not unexpected, though, that it plummeted along with the overall stock market at that point. The situation has been the polar opposite in recent years. From its 2011 high to its 2016 low, gold had one of the worst bear markets in modern history, with a 45 percent drop. At the same hand, given its rapid gains throughout the 2008 crisis and the 2011 meltdown, this isn’t altogether surprising.
Silver did not fare so well during stock market crashes.
In fact, it only increased in one of the S&P selloffs and remained essentially flat in the other. This is owing to silver’s substantial industrial use (about 56% of total supply) and the fact that stock market selloffs are typically connected with a bad or deteriorating economy. Silver, on the other hand, fell less than the S&P in all but one of the crashes. This is crucial since silver’s strong volatility generally causes it to fall much farther. Also note that silver’s highest jump (+15 percent) occurred during its biggest bull market in history in the 1970s. It also finished flat towards the end of the financial crisis in early 2009, marking the end of its second-largest bull market. In other words, if silver is already in a bull market, we have historical precedent that it will do well in a stock market crisis. Otherwise, it can have a hard time.
- Gold is unlikely to decline during a stock market catastrophe, and it is more likely to climb instead. The price of silver may be affected by whether or not it is in a bull market.
Is a downturn beneficial to gold and silver?
When a recession is on the horizon, one of the most talked-about topics is what happens to the price of gold.
Why?
Because the price of gold reveals what investors believe will happen to demand (driven by the economy) and inflation in the future (driven by pricing pressure).
With this backdrop in mind, how have gold and silver prices performed throughout the last two global recessions?
Here’s a sample of what I’m talking about.
Let’s start with the most recent recession. The price of gold prior to and throughout the worldwide recession of 2008/2009 is represented by the black line, which is aligned with the left axis. The price of silver is shown by the red line that runs parallel to the right axis.
Surprisingly, the price of gold did not vary much during the first part of the global financial crisis.
The price of gold began to rise dramatically about the midway point of the recession.
This was most likely due to investor concerns that central banks around the world were producing too much money, resulting in hyperinflation.
The price of gold, which had risen dramatically, had lost some ground by the conclusion of the recession.
Silver’s price, on the other hand, did not fluctuate as much.
When the global financial crisis was declared a recession, gold prices soared, reaching a high of roughly $10.40 per ounce in March 2008.
Over the next six months, the world’s second most well-known precious metal lost ground and slid lower, eventually bottoming out at 5.50/oz in October 2008.
Silver proceeded to appreciate again until February 19, 2009, when it reached a high of $9.90 per ounce, following which it fluctuated a lot around that price.
The pricing experience of the two metals advises one thing: be patient with your holdings.
Prices will fluctuate, but they will give general protection against fiat currencies, inflation, and other risks.
The second glance is at the Great Recession of 2001.
The black line, which corresponds to the left axis, is the price of gold.
The right axis represents the price of silver, which is represented by the red line.
Surprisingly, the price of silver fluctuated very little.
During the 2001 recession, the price of silver fluctuated around 3.0/oz for the most part, with the exception of one trading day.
The price of gold, on the other hand, is a different story.
The price of gold began the recession at 178 dollars per ounce and completed it at 191 dollars per ounce.
For the recessionary period of the year, the overall gain was around 7.3 percent.
Given the stock market’s declines at the time, 7.3 percent was a fairly solid return.
Of course, the return was not consistent.
The price of gold did nothing for the first few years of the recession.
The price of gold rose substantially from 178/oz to 202/oz between April 10th and May 24th.
Perhaps the most obvious lesson is that gold and silver are good recession-proof assets.
When global stock prices were collapsing, gold and silver prices performed admirably.
When diversifying one’s portfolio in anticipation of a possible recession, these two precious metals are excellent choices.
What happens to the price of gold and silver during a recession?
Economic trends and patterns have factored into assumptions about gold’s performance during recessions throughout history. The quick answer is straightforward. Gold prices have historically risen during recessions because the precious metal is seen as a safe investment with positive price elasticity.
In 2021, should you buy gold or silver?
During precious metal bull markets, however, silver tends to outperform gold. As a result, if you feel precious metals will do well in 2021 and beyond, you should select silver.
In a crisis, how much silver do you need?
Most of you who are reading this are already convinced that gold and silver are essential investments. However, as you continue to amass, the question of how much you require naturally arises.
Consider how terrible you’ll feel if the next financial crisis arrives and you find you didn’t acquire enough bullion to go through it. It’s worth considering how many ounces you’ll need just for this purpose.
Investors are becoming more aware of this, and we are receiving questions about it. The terminology varies, but the essential question remains the same: how much real gold or silver should I own to be prepared in the event of an economic downturn?
Why Traditional Advice is Meaningless in a Crisis
Traditional financial advice is that gold should make up 5-10% of your assets, or 10-20% if you don’t include home equity. But Mike and I are confident that amount will not suffice in the upcoming chaos. In these unusual circumstances, what passes for “standard” advice could be financially disastrous. Furthermore, if your overall net worth decreases, these percentages become less meaningful. In a crisis, absolutes, not percentages, will be required.
If you’ve ever wondered if you have enough actual gold and silver, GoldSilver has put together a handy guide to help you figure it out. This metric is a more accurate way to determine whether your budget will be adequate.
What You’re Doing with Your Precious Metals
Which raises an obvious question: what will you do with the proceeds if you sell your stash?
Whether it’s buying discounted investments, establishing a family fortune, buying a vacation property, or augmenting your income during the crisis, there will be plenty of possibilities that span the range of practicality.
And that’s the first step in determining whether you have enough ounces: will your hoard be adequate to maintain your way of living during a catastrophic financial crisis? And there is no one-size-fits-all solution to this problem. To put it another way, you shouldn’t simply inquire, “How much silver does Mike Maloney own?” and use it to guide your purchasing decisions (though I’m sure he’d be flattered). Because everyone’s circumstances are different, you’ll need a distinct method for yours.
What to Expect During the Crises
Of course, inflation will be part of a “serious financial disturbance,” but it will be much more. The global economy will almost certainly go through a succession of crises, with only one of them being inflationary.
And those crises aren’t going to go away anytime soon. As a result, we must be ready to weather any storm that strikes our economy, markets, or monetary system, even if it lasts for years. We’ll remain here for the duration of the transfer. That means we may need to supplement, if not entirely support, our way of living during that time.
I determined how much gold and silver you’d need depending on two variables: 1) your monthly expenses, and 2) the length of the crisis.
(Note that the chart implies the gold price stays pace with inflation, despite the fact that history shows it is likely to outperform CPI figures.) If that’s the case, we might only require a fraction of what’s shown. It also assumes you pay your taxes through a different means.)
Find the monthly spending amount that will support or replace your present level of living, and then match it to the period to figure how much gold you should buy. If you require $500 per month to augment your expenses and the crisis lasts three years, you’ll need around 14 ounces of gold. If you wish to cover $3,000 in monthly expenses, you’ll need 45 ounces for a two-year crisis and 90 ounces for a four-year crisis. The bottom rows of the table are for those who are already wealthy or who wish to live like Mike or Alex.
Of course, we have silver as well. If you’re utilizing silver proceeds, here’s how many ounces you’ll need, assuming the price maintains up with inflation.
To last a year on a $500/month supplement, 300 ounces of silver would be required, or 1,500 ounces for five years.
For a year’s worth of $3,000 every month, you’ll need 1,800 ounces, or 9,000 ounces if you want it to last five years.
Of sure, we may cover our expenses with both gold and silver. To go through a two-year crisis on $1,000 per month, you’ll need nine ounces of gold and 600 ounces of silver.
These sums may appear to be large, but remember that if you don’t save in gold and silver now, you’ll be compelled to spend a lot more in money later.
These tables demonstrate how useful gold and silver can be. They can indeed preserve and even increase our level of living if the price of precious metals rises during times of crisis, as it has in the past.
So, how much gold and silver are you going to require? I hope these tables help you figure out what you’ll need.
Is now a good time to buy in silver?
1. Lack of liquidity If you own real silver, there’s a chance it won’t be liquid right away. You can’t buy groceries with silver bullion bars or a silver bullion coin, so you’ll have to convert it to money first, and the ability to sell quickly can be a problem. If you’re stuck and can’t get to a bullion exchange, pawn shops and jewelers are a possibility, but they’re not always the best-paying.
2. Theft Risk – Unlike most other assets, such as equities, keeping silver bullion exposes investors to the risk of being robbed. Using a safety deposit box in a bank or a safe box in your home to protect your assets from looting can entail additional charges. Furthermore, the more physical goods you have in your home, such as silver jewelry, the more vulnerable you are to burglary.
3. Low return on investment While silver bullion is a wonderful safe haven asset, it may not outperform other investments like real estate or even other metals.
For certain investors, mining companies, particularly dividend-paying silver equities, may be a better investment than silver bullion. “Streaming companies will always beat bullion by itself,” says Randy Smallwood, president and CEO of Wheaton Precious Metals (TSX:WPM,NYSE:WPM). He credits this to organic growth and dividend payouts, which are not available from bullion. Investing in an exchange-traded fund or silver futures are two further choices for silver investors.
4. Increased premiums owing to high silver demand When investors try to acquire any bullion product, such as an American silver ounce coin known as a silver eagle, they will quickly discover that the actual silver price is often greater than the silver spot price due to premiums imposed by sellers. Furthermore, if demand is great, premiums can quickly rise, making real silver bullion more expensive and less appealing as an investment.
What was the value of silver during the Great Depression?
Because the majority of our website visitors are from the United States, we’ll start with charts that show the price of silver in US dollars since the country’s establishment (USA).
The price of silver has ranged from as low as 25 oz during the Great Depression of 1932-1933 to two different high points of around $50 oz in fiat Federal Reserve note valuations throughout our nation’s historically brief +240 year history.
The fiat US dollar price per troy ounce of silver was around $50 oz USD in early 1980 and early spring of 2011. More information on those two specific silver price highs may be found here.
The first price rise happened during and shortly after the US Civil War ended, resulting in price manias in both silver and gold, as shown in the accompanying US silver price history chart. The Union’s military success was financed in great part by enormous issuances of fiat currency Greenbacks.
In the year 1864, the price of silver hit a peak of $2.94 per ounce. When the price of gold reached around $160 oz USD in 1869, it had increased by nearly 8X from its long-standing $20.67 oz USD price.
Below are some key historical dates and charts for US dollar silver prices, as well as current values compared to previous ones.
We’ll start with a chart of US dollar silver prices that spans nearly the entire history of the United States of America.
Why has the price of silver plummeted so much?
The price of silver is falling at its quickest rate in years. Expectations for increased interest rates and a slump in manufacturing activity have brought prices down for the worst four months since November 2014. In that time, front-month silver futures have dropped more than 21% to roughly $22 per troy ounce.
In the event of a financial meltdown, what will be valuable?
In the case of an economic collapse, food will become one of the most precious commodities on the planet. You will not be able to survive if you do not have food. Most American families could not survive for more than a month on what they currently have. So, how do you feel? How long could you survive on what you have today if calamity hit right now? The reality is that we all need to begin stockpiling food. If you and your family run out of food, you’ll find yourself competing with hordes of hungry people raiding stores and roaming the streets in search of something to eat.
You can, of course, cultivate your own food, but it will take time.
As a result, you’ll need to have enough food on hand to tide you over until the food you’ve planted matures.
However, if you haven’t saved any seeds, you might as well forget about it.
When the economy fails completely, the remaining seeds will vanish swiftly.
So, if you think you’ll need seeds, now is the time to purchase them.