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Physical gold and silver are popular wealth-protection assets, in large part due to their record of appreciation during economic turmoil. Frequently, these alternative assets have risen sharply at the same time traditional assets have suffered.
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.”
Although mainstream financial markets remained under pressure throughout much of the 1970s, gold and silver were a different story. 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. financial markets suffered greatly. However, precious metals, as they did in the 1970s, responded brilliantly to the crisis conditions: gold climbed nearly 200%, and silver jumped almost 450%.
The two examples above demonstrate that the right allocation to physical gold and silver during periods of significant economic distress has the potential to soften losses.
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.