Gold is widely perceived as the best safe haven for your capital as the stock market goes through a bear market correction or crash. But is this really true? For gold to be a good hedge it would need to move in the opposite direction (have a negative correlation) to the broad market index, in this case, the S&P500.
Looking back 15 years we can see this is not the case for Gold (GLD) versus the market.
2005 to 2007 Gold out-performs the S&P500 with 52% gains compared to 25% for the S&P500 2007 to 2009 During the Financial Crisis, Gold provided a good safe haven for 7 months until it lost all of its gains. 2009 to Present The S&P 500 goes on a staggering bull run making 481% to January 2020 Gold makes 138% from 2009 to 2012 moving in correlation with the market, then suffers a serious crash wiping out 42% of its value. The crash and stagnation lasts 8 years. Gold is still 13% lower than its previous all-time high. My Observation 1. Gold might provide a very temporary solution as a safe haven during the early part of a stock market correction. 2. During the Credit Crisis, Gold should have been a perfect store of value because as it seemed the Fiat Currency system was failing gold would have been a great replacement currency along with silver. But that did not work out. 3. Gold is only a safe haven is people think it is. 4. Since the 2009 market bottom, Gold has increased by 65% and the SP500 232%
Would I use Gold as a safe haven? Personally no. Not based on this evidence. But in the short-term it may provide relief until people stop believing.
What is a good alternative? Holding cash and dollar-cost averaging into the market again as we near the bottom.
If you like this analysis, please like and follow so you dont miss future updates. Thanks for reading, Barry
I disagree; Gold wasn't a good safe haven during 2008-09 credit crisis because dealer banks, hedge funds, etc had to liquidate gold and treasuries to offset debt. Much in the same way now, but this time the fed has come to the rescue with unlimited QE and claiming they will take ALL debt on their balance sheets which actually does add to the deposits (assets) side of banks, hedgies, retail bank, etc. Therefore, I don't suspect gold will have to sell of in much the same way in the sake of future credit crises due to the fed's safety blanket. Time will tell.
L $160 GLD 6/30
MystryBox
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To see more clearly how gold performs against the market, here is 100 years of the DJIA priced in gold:
Any time that chart is falling, it's better to be in gold than in the DJIA. If stocks were always a great position over the long term compared to a shiny bit of metal with no return then that chart would be a trending line upwards, yet instead it cycles up and down somewhat regularly. Obviously over certain periods gold outperforms the market--for years at a time. Not for "crash protection", as you point out, but instead for some deeper market perception that, for whatever reasons, the market is seen as more risky than holding a shiny bit of metal that tends to hold its value over time (unlike the dollar) and cannot default (unlike stocks or debt-based assets). Gold seems to identify the most severe bear markets of history and outperforms during those times, making it an ideal vehicle to protect wealth during bad times. This inverse correlation to horrible markets is why gold is often a component of professionally designed "all weather" portfolios.
So maybe you're not concerned about my points about the current deflationary environment, nor the historical realities of devaluation being purposefully used during such periods, nor the current actions of the Fed that seem quite damaging to the dollar. But isn't it worth noting that, for whatever reasons, the chart turned down in 2018 (even making a lower high) and is now heading lower again rapidly? The market sees something and it is reflected in the price action.
Other interesting things to notice on that chart... In 1929 it took around 18 oz of gold to buy the DJIA, by 1933 it took 2 oz. In 1999 it took 42 oz of gold to buy the DJIA, by 2011 it took less than 7.
MystryBox
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I wanted to emphasize that in a deflationary debt crisis, the two major issues: rising defaults (due to all the interacting issues of the deflationary environment) and currency devaluation (the typical government response to the deflationary environment) are both exactly in line with gold's particular protective properties. Gold cannot default and tends to hold its value--in contrast to pretty much every other asset in a deflation.
@craigemm, many very intelligent people have a strange aversion to gold. I suppose it's pounded into them by pretty much all the mainstream financial sources while at the same time most the alternative sources that push gold do so quite poorly with a lot of conspiratorial overtones. IMO the reality is gold has an important role in finance (and becoming increasingly more important), but it's not as simple as "buy gold, the dollar will hyperinflate next week."
I ONLY buy it for Insurance purposes against precisely; what is about to unfold in the Markets over the Next 9 years.
BOOM! The 40 year Clown Show in FIAT is about to Entropy...and turn to ash and dust & like the Sands of time will be a Blowin' in the Wind, soon enough.
I have only Traded Gold as Futures Contracts for a bit of $peccy FUN....but not ATM, Im not set up for it and too busy with My Puts/Equities.
We're are going back to the Gold Standard, you heard it here first!
See My recent post on My Page : re. "Long Term Angry Bear..", that spells it out pretty much.
Crypto will play a secondary role also...but despite its largely useless and inconvenient/costly Nature GOLD WILL PERSIST as the safest STORE of value well after WE are ALL Dead!
You can take that to your VAULT/Safe/Safety Deposit Box !!! : )
Stay safe Mystery your Posts rock!
Please consider Following Me.
CM.
MystryBox
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@craigemm, I don't disagree with you, but timing is the issue. Historically fiat usually fails quickly, but "quickly" can still be decades even after the coming failure is clear. And honestly I don't want a rapid collapse. I don't think anyone wants a world where there was a rapid total collapse of global fiat. You might as well wish for a zombie apocalypse. Gold won't have much value in a world suffering a global economic collapse for a long, long time.
Rofl... unfortunately God has OWN Plans known only to Him...
End of the Day....IT IS WHAT IT IS regardless of what WE may want.
..ALL One can do is go hard to mitigate ALL Risks, Be agile and quick to adapt and take ALL precautions because you never know what the Future holds.
...Incidentally the Originators of #KUNGFKU have a truism that;
ALL CRISES are OPPORTUNITIES in Disguise !
Treat it as such and you may just come up smelling Roses...and Coffee...good Coffee. : D
CM
px. I AM in OZ and just on Friday we hit our 26th Death from COVID-19.
We have a total population of 26 M. Down under...
So a one in one million chance of dying from #KUNGFLU here. A poofteenth of a nothing really !
I understand the US is getting very scary numbers ATM. So I AM likely to have a more laissez faire attitude when it comes to OUR outlook vs YOURS. Its understandable.
If I was in the Sates ATM I would be booking a Gulf-stream or Corvair and flying straight to Australia or NZ.
We're STILL The Lucky Country.
GOD BLESS & STAY SAFE ALL my US Friends you may need Him!
...either that or get your asses PRONTO on a Plane to Perth, Western Australia NOW . I'll put you up in My House!!!
i AM SERIOUS that is a SERIOUS OFFER ! ^^^
CM
MystryBox
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@craigemm, thanks for the offer, if I ever get down there I might stop by and say hi. If the world doesn't end first.
L $160 GLD 6/30