We recently wrote an article with the title “When Stocks Fall Fast, Gold Usually Rises Fast.” In it, we listed six times in the last 50 years in which stocks fell very fast and gold rose fast, namely 1973-74, 1976-80, late 1987, 2000-02, 2007-09 and 2011. Now we can add 2020 to that list. The stock market peaked during the week of February 17-21, when gold traded below $1,600 per ounce. Since then, stocks have lost almost 20% and gold gained $100 (+6.3%) even while crude oil and nearly every other commodity was falling fast.
Here are the price changes in just the last three weeks – The Dow is down 18.9% and gold is up 6.3%.
Date Gold Dow Jones Index Crude Oil
February 17 $1580 29,398 $52.05
March 9 $1680 (+6.3%) 23,851 (-18.9%) $33.15 (-36.3%)
Nearly every other commodity is down, since those commodities are based on global growth, and the coronavirus has caused an immediate slowdown in growth prospects. As Goldman Sachs’s Jeff Currie said in a note to clients last Friday: Gold “unlike people and economies – is immune to the virus.”
It’s not too late to get on board with gold, since stocks will remain volatile as long as (1) the coronavirus keeps expanding around the world, slowing growth and spreading panic; (2) Bernie Sanders or Joe Biden gain in the polls during this controversial election year; (3) Saudi Arabia wages a deflationary price war on the global price of oil; (4) global central banks push interest rates further below zero in this deflationary environment; and (5) the world’s nearly-forgotten “hot spots” take advantage of global unrest to expand their power, testing America’s will during a time of crisis. Gold is a proven crisis hedge in times like this.
Industrial metals are also down for the year to date (that is why silver is down). The overall CRB commodity index is down 21% year-to-date, which makes gold’s stand-out +10% performance all the more amazing, since gold is not an industrial metal.
Don’t forget silver. The gold/silver ratio is nearly 100 now ($1,680 gold and $17.04 silver yields a ratio of 98.6 ounces of silver to one ounce of gold), but that only means that we are in a time of crisis, favoring gold, when industrial demand is declining, but industrial demand will return and silver should return to at least an 80-to-1 ratio in the near future, perhaps within a year.