The
record-breaking drop of gold in the past few days has many investors greatly
concerned. But a review of gold’s performance since the global financial
crisis of 2008 indicates the fall is a short-term response to calamitous
world events, as the world’s debt- and inflation-dependent fiat currency
system becomes increasingly unstable.
We have witnessed two other similar instances of this kind of sheer drop
in gold fortunes in the past five years. In late 2008, gold dropped
24.6%, pre-empting the Lehman debacle and the collapse of the Western banking
system. The 2008 crisis set in motion a chain of events that proved to bring
on the worst panic scenario since the Great Depression of the 1930s. As
noted on BullionVault.com, “…a torrent of panic selling on commodity and
global stock markets…froze the European and U.S. banking systems, and changed
the direction of American politics for years to come.” The “meltdown” in
equities worldwide erased $12 trillion of market value for the month, and $31
trillion from a year earlier. Lehman’s collapse left sellers with liabilities
of over $270 billion, and “hedge-funds scrambled to raise cash by selling
anything they could get their hands on, including commodities and stocks.”
The year 2008 was indeed another “watershed” moment in American history,
as the country’s economy teetered on the verge of collapse. Every faction of
the economy was hit, and Americans were suddenly caught in a vice-grip of
instability and confusion. U.S. home prices continued an unrelenting slide for a “20th straight month, reducing homeowner
wealth by about $3 trillion.” Stock market losses plummeted, creating an
additional $8 trillion of “lost wealth.”
As disastrous as the economic slide of 2008 was, gold’s value also
experienced another calamitous fall in September 2011. Gold fell 20% in a
relatively short period—“as Europe’s risks exploded and stocks slumped,
prompting a globally coordinated central bank intervention the likes of which
we have not seen before.” We live in unpredictable times, and often our
economic fortunes are tied to global geo-political or monetary calamities
beyond our control. Gold value has a "nasty habit of predicting stock market
crashes and deflationary scares, forcing the Federal Reserve and other
central banks to double and triple down.” For evidence of this, one only
needs to observe the hit the S&P 500 took after the major gold crash of
2008.
Signs of a possible worldwide recession have spelled an end of the
commodities boom, perhaps temporarily. These dark clouds do have a
“silver lining,” however. Gold and silver have been “correcting” since
2011, with more banks internationally buying up enormous quantities of gold,
thereby increasing their gold assets and capabilities. Mike Maloney,
founder and owner of GoldSilver.com, one of the world's largest bullion
dealers, states, “Right now we are in consolidation. Gold has been
chopping sideways for 19 months now, and it has worn people out. But
basically gold is up. It is not up from 19 months ago when it was nearing
$2,000, but it sure is up over the last decade.” He stresses that investors
need to ignore the “short-term noise” and focus on the long-term benefits of
precious-metal investments.
Just as gold presaged the deflationary period, it was the first asset to
rebound to new highs, and through the ongoing deflation of the past 3 ½ years
(and Bernanke’s on-and-off attempts to re-inflate), we sit some $437 higher.
