How Gold Performed During the Last Financial Crisis
Gold has been the oldest mode of currency. People started using it as a replacement for money to purchase goods and services. However, the fact that its value is not dependant on market breakdowns, unlike paper currency, makes it a safe option for investors.
An in-depth look into the history tells us that yellow metal makes for an excellent hedge against deflation, inflation, and other crises.
To understand why gold has remained such a safe investment option for years, let’s have a closer look at how it performed during and after the 2008 global financial crisis.
Initially, the Prices Dipped
In October 2008, which was the darkest month for all markets, the value of gold declined sharply with the fall of credit markets.
On October 24, gold prices fell to an all-time low of $681 per ounce but settled again in November at $729.10. By the end of the year, the prices rebounded by up to 5 percent at $884.30. In the crisis-stricken period, gold remained the only market that closed 2008 with a price gain. The fluctuation in prices can be observed in the chart below:
On October 1, 2009, gold had already crossed the barrier of $1000 and didn’t drop below this level for the entire year. According to Comex, gold closed at $1,096.20 per ounce in December 2009—a glorious price gain of approximately 24% from $884.30 per ounce in December 2008. Gold surged to a year-high price of $1,227.50 in the first week of December before it closed at $1,096.
What Caused the Price Surge When Other Markets Were Collapsing?
In March 2009, the stock market saw its darkest era. The Standard and Poor’s 500 dropped to an alarming low of around 666, and it was predicted to decline further. Investors went chaotic and started shifting their investments to safer and less-volatile assets.
As the gold market dropped and prices fell in October 2008, panic-stricken investors, who had already sustained significant losses because of the declining stock markets, started purchasing physical gold and exchange-traded funds (ETFs) in flocks.
The sale of gold bullion coins and ETFs rose, particularly toward the end of 2008. In 2009, the U.S. Mint sold approximately 1.33 million 1 troy ounce American Eagle gold bullion coins. It was a significant spike compared to 794,000 gold bullion coins sold in 2008 by the Mint.
The ability of gold to maintain its value over a long period makes it an ideal investment option.
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