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Inside: New analysis from Jeff Clark... we look at a classic video from Mike that's especially relevant now… and we answer your questions from last week.

If the Stock Market Crashes, What Happens to Gold and Silver?

By: Jeff Clark, Senior Precious Metals Analyst
We received a lot of queries asking if it would be better to wait to buy gold until after the stock market crashes.
After all, Mike has warned that a stock market crash is likely. Given what happened to global markets from the Brexit surprise, it’s a timely question.
And if the market takes a dive, many investors think gold and silver prices will fall, too.
If so, wouldn’t it be better to wait to buy them until after the dust settles?
Probably the best way to answer this is to look at what’s happened in the past…

The Message From History

I looked at past stock market crashes and measured gold and silver’s performance during each of them, to see if there are any lessons we can learn.
The following table shows the eight biggest declines in the S&P over the past 40 years, and how gold and silver responded to each.

There are some reasonable conclusions we can draw from this historical data.
  1. In most cases, the gold price rose during big stock market crashes. Notice this was regardless of whether the crash was short-lived or stretched over a couple years. Gold even climbed in the biggest crash of them all, the 56% decline that lasted two full years in the early 2000s. It seems clear that we should not assume gold will fall in a stock market crash… just the opposite has occurred more often.

    The reason for this is because gold generally has a negative correlation with the stock market. In other words, when one goes up, the other tends to go down. Which makes sense… if the stock market falls, fear is usually high—and investors typically seek out the safe haven of gold. If stocks are rocking and rolling, the perceived need for gold from the mainstream is low.

    You’ll recall gold did fall in the initial shock of the 2008 financial crisis. But while the S&P continued to decline, gold rebounded and ended the year up 5.5%. Over the total 18-month stock market selloff, gold ended that period up over 25%. The lesson here is that one should not panic if gold temporarily suffers from a stock market collapse. And of course see it as a buying opportunity.
  2. Gold’s only significant selloff (-46% in the early 1980s) occurred just after its biggest bull market in modern history. Gold rose over 2,300% from its 1970 low to the 1980 peak… so it isn’t terribly surprising that it fell with the broader stock market at that point.

    We have the opposite situation today. Yes, gold is up roughly 24% year-to-date, but we’re still coming out of a punishing four-year bear market where the price declined by as much as 45%.
  3. Silver did not fare so well during stock market crashes. In fact, it rose in only one of the S&P selloffs (and was basically flat in another one).

    This is likely due to silver’s high industrial use, and that stock market selloffs are usually associated with a poor or deteriorating economy.

    However, notice that silver’s biggest rise (+15% in the 1970s) took place amidst its biggest bull market in history. It also did not decline during the financial crisis period of late 2007 to early 2009, which was its second biggest bull market. In other words, we have historical precedence that silver could do well in a stock market crash if it is already in a bull market. Otherwise it could struggle.
The overall message from history is this: odds are good that gold won’t crash if the stock market does. Silver might depend on whether it’s in a bull market.

What if the Stock Market Doesn’t Crash?

We have to consider another scenario: what if the stock market doesn’t fall off a cliff?
Or what if it’s just flat for a long period of time? The 1970s (through 1980) saw three recessions, an oil embargo, interest rates that hit 20%, and the Soviet invasion of Afghanistan.
Look what the S&P did during that turbulent period, along with gold.
The S&P basically went nowhere during the entire decade of the 1970s. After 10 years it was up a measly 14.3% (excluding dividends and commissions). Gold, on the other hand, rose from $35 per ounce to its January 21, 1980 peak of $850, an incredible 2,328%.
In other words, gold’s biggest bull market in modern history occurred while the stock market was essentially flat. That’s because the catalysts for higher gold weren’t solely related to the stock market—they were more about everything else going on at the time. We have to allow for the possibility that this happens again: citizens are drawn to gold due to other pressing concerns besides the performance of the S&P.
I’m not suggesting there won’t be a stock market crash. Odds are better than 50/50 that’s what we’ll get. But if we do, history shows that gold may not crash with it. Or it might fall only temporarily. Or we might not get a crash at all.
For these reasons, I think it is wise to own a good chunk of gold now.
Anything can happen when markets are hit with extraordinary volatility. But consider all the risks we face today… do you really want to be without gold right now? I don’t.
Perhaps the ideal solution is to have a stash of cash ready to deploy if we get another big decline in precious metals—but also have a stash of bullion already set aside in case the next crisis sends gold off to the races.

There are 4 unmistakable signals a financial crisis of epic proportions is headed straight toward us.

In this first episode of the new season of Hidden Secrets of Money, Mike shares conclusive proof a crash bigger than 1929 is coming. Keep in mind, this video was released back in November but couldn't more relevant today.  

Q&A With the GoldSilver Staff

Thanks for your questions. I try to respond to everyone, though I can’t to those queries that require personal advice. If you keep it general we’re more likely able to respond.
A couple great questions to highlight this week…

Will the Market Crash This Fall, Just Like 2008?

Question: I am hearing much about Sept-Oct this year (2016) being the time for a bigger and worldwide repeat of the 2008-09 collapse. Can you explain or comment on that? If that is the case, do you think gold and silver will really start to rise then? How will silver perform in comparison with gold? Thank you for your time and knowledge. -- Ralph J.
Answer from Jeff Clark: I don’t pay much attention to most predictions, especially ones that come with a specific date. What I instead focus on is risk, my exposure to that risk, and how I will protect me and my family from it. And almost any way you measure it, risk is high right now… the stock market is at a record peak, deflation is real and growing, interest rates are negative in many parts of the world, bonds and Treasuries pay next to nothing, and we have political leaders that seem inept (I’m sure you can think of other adjectives). I need to hedge against all that, whether the fallout from it transpires this month or this September or later this decade. And one of the best hedges is physical gold and silver.
If something big does happen this September, then yes, gold will soar, even if it temporarily falls in the initial shock like in 2008. As the article above shows, silver might struggle in a stock market selloff. However, by the time we exit the precious metals sector, silver will have likely outperformed gold, regardless of its reaction to a stock market crash.
My advice is to be prepared regardless of when the next crisis might hit. Honestly, it’s hard to imagine an environment more conducive to owning gold right now.

Where's the best place to store my precious metals?

Question: Hi Jeff, welcome to GoldSilver and thanks for your analysis. I've been enjoying the Q&A segment of the newsletter and would like to ask a question about storage. In an interview with Greg Hunter on March 1, Bix Weir makes a distinction between holding precious metals in one’s own possession vs. storing them in a vault. (I also seem to remember him saying he only recommends people store precious metals in vault storage if they know the management personally, but I can't seem to find that clip at the moment.) Anyways, I was wondering if you could comment on vault storage vs. keeping precious metals in one’s own possession. Thanks so much, Stephen W.
Answer from Jeff Clark: There’s a lot that can be said on this topic, but let me highlight a few things I think are important…
First, everyone should have some gold and silver bullion stored close by. This is one of the reasons you own bullion: to access it in an emergency. If it takes you two days to get to it, or you have to jump through several hoops, or you’re at mercy of an intermediary, its use as an emergency asset has diminished. You want some physical gold and silver that is easily and immediately accessible to you in any type of crisis.
So, just keep it all at home, right? The problem with home storage is that it’s not risk free. Your bullion is exposed to fire and any other natural disaster… or it could get misplaced… or you don’t remember all your hiding places… or word gets around and a couple thieves come knocking in the middle of the night. And if something happens, your bullion isn’t insured.
This doesn’t mean you shouldn’t have some at home. For most people, this is acceptable—as long as you don’t tell people about it. The “golden” rule about home storage is that only one other confidant should know. Any more and your risk level just went up.
For home storage, I highly recommend a safe, like the ones we sell. You still have to keep the golden rule, though. Consider this unpleasant possibility: a burglar holds a gun to your sweetie’s head for the combination. This is exactly what happened to a friend of my Dad. The ending was not a happy one. I can’t say it enough: keep quiet about what you have, and where it’s stored.
If you’re uncomfortable with how many people already know you have gold (or who they’ll tell), or you’re in the public eye like me, you might want to rethink home storage. Or at least reduce what you keep at home. If you don’t store it yourself, your other option is to pay someone else to store it for you.
The easiest and least expensive of those options is to use a bank safe deposit box. There’s still risk of fire and theft, but you’d avoid a total loss if your home is robbed or your kid plays scientist with the gas stove. However, as we’ve discussed at GoldSilver before, one reason we own gold is to protect against the banking system. If you go this route, consider placing only some of your metal there.
Once your stash starts to grow, I recommend you consider private storage. Once your bullion holdings reach a point where you would be wiped out if something happened to your stash, it is time to consider professional storage.
The keys to private storage are that your metal be held 1) outside the banking system 2) fully segregated or allocated in your name, and 3) easily and quickly accessible. I’m proud to say that GoldSilver’s program meets all these criteria and more.
The bottom line is this: the more your holdings grow, the more you need to diversify where they’re kept. Don’t put yourself in a position where you’re left gold-less if something happens to your stash.
As far as not using private storage unless you personally know management… while this may be ideal, it is certainly not realistic for the average investor. Most customers simply won’t have the opportunity to personally meet with management, much less get to know them well. Do you know your bank manager personally? You know, the bank where you deposit all your paychecks and write checks and take loans and use credit cards and store some savings and rely on your currency being kept safe both physically and digitally? You probably don’t, and yet you use all these services.
Further, personally knowing someone is hardly a guarantee of safety. People can be tempted. I've had bullion stolen by a family member—I know them very well and that didn’t matter.
Management doesn’t directly guard your bullion anyway… there are security personnel, IT people, and don’t forget all the administrative people that work at a depository. A better solution is to use the three criteria I outline above as a starting point.
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