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Gold and silver in their physical forms are popular wealth-protection assets, in large part due to their record of appreciation during economic turmoil. The value of these alternative assets has risen sharply many times at the same time traditional assets were suffering.
Two periods in particular illustrate precious metals’ power to triumph during economic misery: the tumultuous decade of the 1970s and the years of the 2008 Great Recession.
Those who remember the 1970s will recall the decade as being one of significant economic distress in the U.S. The unemployment rate climbed to nearly 10%, and by January 1980 inflation had reached a startling 14%.
Blame for this economic turmoil fell to President Nixon, who took a number of controversial steps on “behalf” of the economy. He was accused of forcing Federal Reserve Chairman Arthur Burns to keep interest rates artificially low in the run-up to the 1972 reelection campaign.
Experts suggest the high levels of inflation later in the decade were a direct result of this manipulation of the money supply. Wharton Professor Jeremy Siegel has referred to the decade as “the greatest failure of American macroeconomic policy in the postwar period.”
Against this backdrop, the stock market performed about how you think it would. From January 1970 to January 1980, the Dow Jones Industrial Average rose less than 2% – over that entire period of time.
Gold and silver were a different story during that same period. Taking their cues from the troubled economy, gold soared roughly 1,500% and silver skyrocketed an astonishing 2,100%.
Memories of last decade’s financial crisis are still fresh in the minds of practically everyone. The “official” dates of the Great Recession in the U.S. run from December 2007 to June 2009. However, the consequences of the meltdown were in play for years afterward due to the global, multi-year nature of the contraction. Americans were still suffering long after the “official” end date of the recession.
During this economic crisis, U.S. equities investors saw the value of their portfolios drop by more than 50% at one point. From January 2006 through spring 2011, the S&P 500 returned just 7.25% for the 5-year+ period. Precious metals, as they did in the 1970s, responded brilliantly to the crisis conditions: gold climbed nearly 200%, and silver jumped almost 450%.
It’s worth noting that in chaotic economic environments such as the financial crises of these two historical periods, gold and silver often not only finish ahead of stocks but crush them by a significant margin.
The two examples above demonstrate that the right allocation to physical gold and silver during periods of significant economic distress and stock market volatility has the potential to not only soften equities losses but realize significant gains.
If you are interested in additional examples or more information about the ways gold and silver tend to perform during financial crises, we invite you to call Augusta and have a conversation with one of our gold and silver specialists.