It cannot have escaped our reader’s notice that last week there was a newsworthy Stock Market crash. I’ve been away in Athens at a conference. But, upon returning, I wanted to address the elephant in the financial room. So, what’s going on?

 

Nothing of any surprise is the answer. The only surprise would be how has it taken this long for the façade to slip a little? One of my favourite quotes – at least relating to financial issues – is the following: 

“If history repeats itself, and the unexpected always happens, how incapable must Man be of learning from experience?” (George Bernard Shaw)

The ever erudite Seeking Alpha states that “The recent stock market collapse evokes memories of the infamous crash that surprised investors in October 1987, coming during a time of strong growth, full employment and rising inflation. Up until a couple weeks ago, Black Monday had been a lost remnant on many investors’ minds. Today, the similarities are too identical to ignore.”

There’s that odd word again, “surprised.” Why do stock market collapses, especially long overdue ones, surprise anyone?

Of course, the Bank of England would like us to hear them when they say, move along nothing to see here. And I quote, last week’s “stock market volatility is not a foreshadowing of a crash like that seen in 2007, a deputy governor of the UK’s central bank has said.” (The Telegraph) “Rather than a repeat of the 2007 crash, these corrections had placed the US market “back where we were a couple of months ago”

How does that sit with the general public? Here is an absolutely fascinating graph I stumbled upon while researching this piece. Here is a graph showing the rise in the Google search for the term “stock market crash” over the last year: 

Graph showing Google Search for the term “stock market crash” over the last year

I am sure the vast majority of our readers would qualify to be included – hopefully – in the high percentage of the public who are “awake” to the ill-health of the global economy.

The excellently awake Market Oracle expounded on the public’s view this week by stating: “Let’s cut to the chase; the markets have finally fallen in line for those of us who manage markets, as opposed to dollar cost average into them through a money manager and then go about life, blissfully unaware. But today the bliss is wearing off as the average person did not need to wait for his monthly statement to see that something went wrong with the up-melting market that was printing him money every month.”

 

Awareness into Action

It is one thing to see what is happening and not be surprised. It is entirely another to have taken action in preparation. If we are seeing the house of cards beginning to once again buckle under the strain of whitewashed walls, what will happen to the price of Gold and Silver when – not if – the markets crash?

No one can predicate the future. Or can they? Let’s look backwards to look forward. Here are some statistics that show the percentage rise (or occasionally fall) in Gold and Silver prices in the same space of time as the S&P500 falls:

 

Statistics that show the percentage rise in Gold and Silver prices in the same space of time as the S&P500 falls

If a neighbour or family friend were to present us with the above figures (i.e. monthly sections of time when an investment rose historically between 6.2% and 53.8%) what would we do? Yes, there are two caveats – two periods of time where it fell. It’s life. I can’t explain why.

And let me make clear. As an employee of a Gold and Silver bullion company I cannot advise. I can only show and inform.

Notice the difference between Gold and Silver. The extent of the difference surprised me. Silver is an industrial metal, so – once again – it is crucial to reiterate that researching the characteristics of each precious metal is essential before investing.

But, are we there yet? It is debatable and that debate must be had. Yes, positioning ourselves is key in life to what’s coming. But timing can also be essential. Knowing when to wait and when to proceed is a matter of discernment. So, here is the other side of the argument to help us weight up that all-important question:

“But this was not really a crash: markets worldwide are still far higher than they were two months ago. The dip [last week] was as nothing compared with Black Monday in 1987, when the Dow lost a quarter of its value in a few days. And the market is not a barometer of the economy. There was no banking collapse, no terrorist-driven panic, no geopolitical disaster. This was a good old-fashioned market–driven change in valuations, after a bull run. In fact, it may well be that the world economy is finally moving on from the 2008 crisis, escaping the doldrums of its long aftermath.” (The Spectator)

Here’s another fascinating overview, to try to see what might happen and how long we have to move into Gold in the event of the stock market crash. All we can do is present the facts. This graph was produced a just over 2 years ago but is one of the easiest to read:

 

Graph showing how long we'd have to move into Gold in the event of the stock market crash

 

The producer of this article asks the pivotal question; “How long it will be before the market regains the levels seen before the crash. Will it be more than 1,000 trading days, as it was in the aftermath of the bear market brought on by the September 11 terrorist attacks? Or will it more like the 44 days needed to recover from the crash of September 1998?” (The Telegraph

The author then gets a little technical. But as I thought whether to include the following paragraph I realised that many of you, our clients, are increasingly thoroughly researched and keep us on our toes.

The “data on recovery times shows that only three of the seven crises can be considered as genuine turning points: Black Monday in 1987, the bursting of the technology bubble burst in 2000 and the great financial crisis of 2008. The rest, ranging from the Asian crisis in 1997 to the European debt crisis in 2011, were more in the nature of corrections, given that the FTSE 100 clawed back its losses relatively quickly. What were the warning signs that these great crashes were approaching? John Husselbee, who runs “multi-manager” funds for Liontrust, and has been a fund manager for 30 years, said four key indicators were worth keeping an eye on.

From his perspective, what set the great crashes apart before the market dropped, he deemed the key indicators of fear:

  1. The ‘Vix’ index, widely known as the fear index;
  2. The gold price;
  3. The US dollar;
  4. And the yield on US government debt.

“In 1987 and 2008 the first three rose, while yields on US government bonds shrank [meaning that their prices rose] as investors fled to safety. Stock markets are driven by fear and greed, and each of these early warning indicators was a reflection of the fear at the time.”

These are quite technical indicators to watch for the average person. However, if one just wants to wander into owning physical Gold and Silver over the long term, that goal can be achieved through a simply phone call to Bleyer at any time, regardless of what bumps and jumps are happening in the stock market at the time.

We hope this week’s short but thorough research has helped give some long-term perspective on how the rises in Gold inter-relates with the stock market crashes and corrections. It’s a difficult art to dissect.

 

To discuss owning Physical Gold and Silver call one of the Bleyer Team now on 01769 618618 or email sales@bleyer.co.uk

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