In today’s post I want to discuss about what happened during the Great Recession with gold prices. All too often, I hear people say that precious metals declined during the great recession, so it really makes no sense to own them. So, I want to unpack what happened during that time frame, the primary reason this happened, and why even if it happens again with another crisis, precious metals are a solid way to preserve purchasing power.
To begin, we all know what happened during the 2007 financial crisis. In a nutshell, lending standards for mortgages were extremely laxed, and as these subprime mortgages were underwritten, they were then packaged together with other higher quality mortgages and securitized. The securities were sold to investors as top tier, and as home prices began to eventually fall and people couldn’t afford to make their payments, the system crashed (Reasons to own Silver). All in all, Wall Street messed up by selling junk as higher quality and the government dropped the ball by trying to get everyone in a home.
That said, both the stock market (Why stock index funds could lose popularity) and the real estate market crashed, and many ask why did precious metals decline in price 30%? The primary reason this occurred is simple: people had to liquidate assets to have cash to pay bills and other mandatory things. At the end of 2008, gold dropped from around a $1000 an ounce to about 750 or 800. But what happened next is really important: From 2009 to 2012, gold would shoot up to around $1800.
Now, this information is valuable and really is important for stackers. This is because at some point the economy will fall into a recession in the future, in my opinion. I personally believe that we are in kind of a silent recession right now and the stock market should not really be used to gauge economic health. Still, the key takeaway here is that if SHTF happens (My Prepping tips- read here), don’t be surprised if precious metal prices fall with everything else. There should be a lag effect, like we saw in the great recession, meaning many people will wait as long as possible to begin selling. And what’s great about precious metals is that they are liquid, and you’ll be able to find a buyer.
All this said, we seem to be or have been getting back to normalcy in precious metals markets in 2024. Over the past few years, it looks like lots of people jumped in to stack and thought they were going to be rich. The last several months at least we’ve seen premiums decrease substantially across multiple bullion sites. That said, I think at some point the mania will come back, and that’s why I believe this is going to be a great year buy precious metals.
