History Says Gold Performs Well Before, During and After a Financial Crisis

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…And the rising yen isn’t the only troubling sign.

As you know, personal and corporate debt continues to pile up. Household debt is reaching unprecedented levels. It just topped $13.5 trillion in 2018, a new record.

We saw a huge run-up in debt before the last financial crisis. And none of those problems were fixed. They all just got kicked down the road.

Then, there’s the inverted yield curve. That’s the spread between long-term and short-term Treasuries – when that spread goes negative, it has historically meant that we’re in, or about to enter, a recession. The spread between the 10-year and 3-month Treasury yields has plunged to almost zero in recent months, threatening to go negative.

So a lot of red flags are popping up at the same time. This suggests that we could be nearing the end of the bull market in stocks… as well as the business cycle.

Justin: What does all this mean for commodities?

Dave: Here’s the thing about commodities. They tend to do well in the late stages of the business cycle.

Heading into the last financial crisis, gold had a huge spike. Platinum and oil also went on big runs. So spikes in certain commodities can often indicate that we’re in the late stages of the business cycle.

We’re seeing that again. Certain commodities are showing signs of life. Palladium – the sister metal to platinum – just had a huge run. It topped $1,600 a few weeks ago, which was an all-time high.

Oil is coming back. West Texas Intermediate crude is up 50% since late December.

Gold also had a notable bump, rising from $1,200 per ounce in late 2018 to above $1,300.

These aren’t the sorts of huge runs we saw in 2007. But certain commodities are coming back to life.

Justin: So should investors be positioning themselves in commodities right now? Or should they be moving to cash?

Dave: That’s a great question. My team and I looked into this recently. We analyzed how certain metals – major base metals, minor base metals, and precious metals – fared before, during, and after the last four big financial crises.

We found that you need to be very selective about what commodities you own. You especially want to be careful with how much exposure you have to base metals like copper and zinc. These metals tend to get hit hard during financial crises.

One reason for this is that there’s a lot of paper investment in copper. In other words, its price isn’t just a reflection of its actual use. Many people are speculating on it. Those people will liquidate their positions if there’s trouble. So I’d be very careful with copper exposure these days.

But there are some base metals that fare better. Historically, battery metals like vanadium and cobalt didn’t perform nearly as badly during crises because they don’t have that kind of speculative element in the market.

Justin: Interesting. So are there metals that have historically done well during crises? I have a feeling you’re going to say gold.

Dave: Yeah. As you suspect, gold is a good place to invest in before and during crises. Based on our research, gold outperformed all the other precious metals. It tends to perform really well ahead of financial crises. For example, gold had a huge run in 2007 and 2008, rising over 50% in under 12 months.

So gold is a perfect place to hide if you think there’s a crisis on the horizon. You could make a lot of money in the period leading up to the crash. If you sit on the sidelines, you’re going to miss that.

We also found that gold held its value well through crashes. It was almost even.

…Justin: And what about after the crash? Is that also a good time to hold onto gold?

Dave: We found that gold, along with the other precious metals, tends to perform really well in the year after crashes.

…In the few years immediately after crashes, gold and the other precious metals have been real outperformers. It takes longer for the base metals to come back.

…So there are cases where other metals do well. But gold, silver, platinum, and palladium have usually done the best in the first few years following a financial crisis.

…Justin: So it sounds like gold is the place to be for both speculators and long-term investors.

Dave: Yeah. Based on its track record, gold should deliver the safest and steadiest returns in the coming years. It also has the potential to deliver the biggest gains… before, during, and especially after a crash.”

Source.

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