The reason gold tends to be resilient during stock market crashes is that both are negatively correlated. In other words, when one goes up, the other tends to go down. The main reason why gold is more resilient during stock market crashes is due to negative correlation. One goes up when the other goes down.
Unlike real estate, oil, or the stocks of income-generating companies, gold has very little fundamental value on which to base a realistic price. As with other publicly traded assets, the price of gold fluctuates every day at the whim of market forces of supply and demand. When the price of gold rises dramatically over a short period of time, usually because speculators raise prices above their intrinsic value, a gold bubble forms. But does this coverage hold up during stock market crashes? Knowing what effect a market crash and the subsequent fall of the dollar will have on silver and gold is vital for making investment decisions now and then deciding what direction to take in the event of a major recession or depression.
The price of gold is likely to never fall below the cost of extracting it from the ground and bringing it to market. The following table shows the eight biggest falls of the S%26P 500 since 1976 and how the prices of gold and silver responded to each of them. It was only the perception of possible inflation, due to the fall of the dollar, that caused gold prices to rise. The price may drop on any given day, simply because there were more gold sellers than there were gold buyers on the stock exchanges that day.
But is it worth it? Is it beneficial for your portfolio to diversify and place between 10 and 15% of your assets in gold and silver ingots and coins? Jeff speaks regularly at precious metals conferences, serves on the board of directors of Strategic Wealth Preservation in Grand Cayman and provides exclusive market analysis and commentary to GoldSilver clients. Stocks benefit from economic growth and stability, while gold benefits from economic hardship and crisis. If the stock market falls, fear is usually high and investors often look to gold as a safe haven. To help answer the questions posed above, I analyzed past stock market declines and measured the performance of gold and silver during each of them to see if there were any historical trends.