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Are Precious Metals a Safe Haven during Crisis?

Are Precious Metals a Safe Haven during Crisis?
By Ron DeLegge, Editor
January 11, 2011

SAN DIEGO (ETFguide.com) – Even though precious metals have been lagging performers so far this year, both gold (NYSEArca: GLD) and silver (NYSEArca: SLV) recorded handsome gains last year. But how reliable are they during times of crisis?


This is a pertinent question, especially as Europe’s sovereign debt crisis continues to put mounting pressure not just on the euro dollar (NYSEArca: FXE) but on the global economy.

Let’s evaluate the historical performance of precious metals during crisis periods. 

Bear Market in Stocks (1973-74)
The mid-1970s bear market was one of the worst in our modern era. It sent the Dow Jones Industrial Average (NYSEArca: DIA) tumbling 45% from January 1973 to December 1974. It was triggered in part by the “Nixon Shock” which was a series of economic measures taken by acting U.S. President Richard Nixon that included ending the convertibility of the U.S. dollar into gold. The ’73 oil crisis added to the stock market’s woes. During this tumultuous time, gold prices increased and silver held steady
.

Year

Gold’s Average Price

Silver’s Average Price

1973

97.39

3.137

1974

154.00

4.391

1975

160.86

4.085

 
 



Black Monday (1987)
On October 19, 1987 the Dow Jones Industrial Average lost 22.61% in value. And global stock markets followed suit. There’s still disagreement about why stocks crashed on that day but programmed computer trading has been blamed. Both gold and silver held steady during this turbulent period.

Year

Gold’s Average Price

Silver’s Average Price

1986

368.00

5.364

1987

447.00

6.790

1988

437.00

6.108

 





Gold vs. Silver

“No one ever possessed so much silver as to want no more; if a man finds himself with a huge amount of it, he takes as much pleasure in burying the surplus as in using it,” said Xenophon, a Greek historian around 355 B.C. And while his endorsement of silver is nice, knowing whether it’s a better relative value than gold wasn’t something he explained.

The December 2010 ETF Profit Strategy newsletter analyzes gold/silver ratio to gauge which represents a better value. It also looks at the performance of precious metals during other market meltdowns over the past four decades. Needless to say, the findings are remarkable. 

In summary, evaluating the historical performance of precious metals during times of financial trouble may give us insight into its ability to counteract future meltdowns.

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