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What Does A Global Recession
Mean for Precious Metals?

The theory of owning bullion-priced physical precious metals is as a form of ‘wealth insurance’ to counteract declines in the value of paper assets such as stocks, bonds, and currencies.

However, this general trend does not occur instantaneously. Patrick Heller, www.libertycoinservice.com newsletter took a look back at what happened to gold and silver prices during the Great Recession which can provide a good roadmap of where they may be headed this time around in the short to medium time frame.

When there are significant drops in stock prices, as has happened several days already in 2022, leveraged investors get margin calls to send immediate cash to maintain their holdings. If they fail to supply immediate cash, the broker sells out their leveraged positions. One way to raise immediate cash is by selling non-leveraged assets – which are often precious metals. Therefore, on a day when stock prices are falling it often happens that precious metals also temporarily decline.

There are also a number of days throughout the year when precious metals trading is thin, meaning that any effort to suppress the price can be accomplished using fewer resources. Three- and four-day holiday weekends are among these opportunities.

Then there are a number of days where US government officials want precious metals markets to be weaker than usual to help broadcast the image of competence. Among those days are where major financial reports are released (such as the monthly jobs and unemployment report and the consumer price index report), last trading days of the month and calendar quarters, when the president, Treasury secretary, or chair of the Federal Reserve is making a major speech, and the like.

So, it really wasn’t a surprise that precious metals prices were clobbered on Thursday, June 30, then continued to be suppressed the next day going into the Independence Day holiday weekend.

In addition, if the financial news is especially poor, that is also an incentive for the US government (the greatest beneficiary of lower gold and silver prices) to make sure that precious metals prices are restrained. Doing so discourages people from liquidating their paper assets to reallocate the funds to gold and silver.

So, what happened to gold and silver prices in 2008 and onward during the Great Recession?

When Bear, Stearns collapsed on March 16, 2008, gold reached a peak two days later at $1,003.25. Silver reached its peak on March 5, 2008 at $20.69.

From March 18 to November 13, 2008, the price of gold fell 28.7% to $715.00 Silver dropped from March 5 to October 28, 2008 by 54.6%, to $9.39. From those bottoms in late 2008, the price of gold climbed 162.1% to close at $1,873.75 on September 2, 2011 (though it rose as high as $1,924.00 during trading hours that day); silver exploded to a COMEX close of $48.59 on April 29, 2011, a whopping increase of 417.5%!

As the global recession develops, gold and silver prices will not necessarily bounce back up quickly. As we saw in the Great Recession, it took over 30 months from the bottom to the peak.

However, this time around the recovery in precious metals prices could happen much faster.

There are a few factors different today than during the Great Recession:

• The Federal Reserve Bank balance sheet has already soared, currently almost ten times the value of assets at the beginning of the Great Recession. That means that there is less room for expansion to combat the current downturn.

• The Federal Reserve has already spent trillions of dollars since mid-2019 injecting overnight and other short-term liquidity to the primary trading partners of the Federal Reserve Bank of New York. Once again, there is little room to further expand this activity.

• Russia announced that it is working to create a commodity-backed currency to specifically displace the use of the US dollar in international commerce. A global currency backed by actual physical assets (of which Russia has ample quantities) could easily displace the unbacked US dollar in many more transactions.

• China also recently announced that it has signed an agreement with the Bank for International Settlements to increase the international liquidity of the Chinese yuan renminbi currency.

This would further replace the use of US dollars in international commerce. Any of these four factors could accelerate the current decline in the purchasing power of the US dollar, leading to a faster jump in gold and silver prices.

When gold and silver prices do recover, the normal trend is that silver will rise by a greater percentage than gold (in falling markets, silver also sinks by a greater percentage).

Since nobody knows for sure what the future will hold, I recommend owning both gold and silver bullion-priced physical coins and ingots as wealth insurance. I am highly confident that within a few years today’s spot prices will be considered as great buying opportunities.

Numismatics Remain Strong

Nice rare coins are still in strong demand by collectors. There are a few areas of softness, such as many of the Carson City Mint Morgan Silver Dollars, but attractive solid quality coins are getting ever more difficult to locate – and then acquire at a reasonable price.

Editor’s Note: Patrick A. Heller is editor of the award-winning Liberty’s Outlook, newsletter, published by Liberty Coin Service, 400 Frandor Ave., Lansing, MI 48912, 1 year, 12 issues, $159. Liberty Coin Service has been a buyer and seller of gold, silver, platinum and palladium bullion and quality rare coins since 1971. They also buy and sell precious metals and rare coins. For Daily Price Quotes visit www.libertycoinservice.com.


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