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Strategies & Market Trends : Dino's Bar & Grill -- Ignore unavailable to you. Want to Upgrade?

To: Goose94 who wrote (9689)

10/16/2014 7:58:11 AM

From: Goose94

Read Replies (1) | Respond to of 203329

The Gold Rush of the Great Depression

Perhaps a more direct example is the miners. It was the only way citizens could effectively own gold after Roosevelt’s confiscation. The comparability isn’t perfect, but again, there’s something to learn.

When the stock market crashed in 1929, gold stocks were part of the general wreckage. The market then rallied and recovered almost 50% of its losses by April 1930, with gold shares again tagging along. It’s what happened next that gives us another clue about gold and deflation…

When the bear market resumed in the summer of 1930, all securities sold off again—except gold stocks. Gold shares stayed basically flat until early 1931, when their appeal to the masses kicked into high gear.

Look at how shares of Homestake Mining, the largest gold miner in the US at the time, and Dome Mines, Canada’s senior producer, performed during the Great Depression.

Company	Stock Price 1929	Stock Price 1933	Total Gain
Homestake Mining	$65	$373	474%
Dome Mines	$6	$39.50	558%

No Homestake chart.

During a period of soup lines, crashing stock markets, and falling standards of living, investors fled to the only gold they could own at the time.

Yes, volatility was high throughout the Depression, with occasional wild price swings, but after the 1929 crash most of the volatility was to the upside.

Notice the large spike down in both Homestake and the Dow during the 1929 crash—but then look at Homestake’s recovery immediately afterward, returning close to its old high. You’ll then notice the stock took almost two years to exceed its old high, but once it broke out, it was off to the races. The stock doubled four times in five years during a seven-year run to its peak after the ‘29 crash.

The conclusion? If history is any guide, gold can hold its own against deflation. Its status as a safe-haven asset during one of the greatest times of economic distress was demonstrated clearly by investors buying the stocks.

All this said, the overriding concern is that in a fiat system, any deflation will be met with an inflationary overreaction. And the worse the deflation, the more extreme the overreaction will be. QE5, anyone?

There’s turmoil ahead, and almost certainly another crisis. The recent decline in the gold price has only served to make our insurance cheaper. Continue to accumulate physical bullion in your Hard Assets Alliance account to offset whatever form that crisis may take.