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Is Gold About To Crash?

| September 18, 2020

The last time Gold was above $1900 per ounce was in 1988 , when the all time high price was $2,188 per ounce, during the year of a presidential election that would determine the continuation of the Reagan policy through George H.W. Bush and a Massachusetts Democrat, Michael Dukakis, threatening to reverse the high growth policies of the Reagan administration.

Is this why Gold prices were high? Is the same thing happening today? Are people leaving stocks and bonds thinking Gold is safe? The advertisers sure make it sound like that is the only option, but beware! Leave emotion behind and understand that nothing is necessarily “safe.”

Every time fear runs through the investment world, people run to gold, pushing up the price. They do this because advertisers have an amazing way to make people feel safe, even though gold could be as volatile, if not more volatile in price over longer duration than market volatility.

Historically, gold has had huge losses in value. In 1934, several years after the great depression, gold was valued around $689 per ounce. Over the next 40 years, gold dropped to $243 per ounce in the 1970’s. It tanked through a World War, a Vietnam war, and all other terrible times, and even as the USA became the most powerful economy in the world, gold prices sank. That does not make it sound like a secure option now, does it?

In the next 18 years, Gold went from around $240 per ounce to $2,000 per ounce. These were during both good AND bad times. There was the gasoline shortage and recession of the late 70’s, and the greatest growth period of modern times, in the Reagan years. Twelve years later, Gold tanked to $382 per ounce in April of 2001.

From 2013 to 2020 Gold has swung up and down from $1000 to $1500 per ounce. What’s different about 2020 that makes Gold hit levels unseen since the late 80’s? The difference is, like 1988, we are in an election year that could determine a drastic change in economic policy, and fear and anxiety, as well as low rates and inflation, are pushing gold prices high. Demand increases daily, but what happens after the election if people believe economic policy will push stocks higher, and they abandon gold?

Gold’s supply would increase, and its value would decrease, and could possibly crash. Interest rates could rise again, causing deflation, and devaluing gold prices. The dollar could strengthen, and weaken the value of gold. There are many threats to the value of gold, as any other investment. The argument here is, don’t put all your eggs in one basket, or better yet, don’t fill all your baskets with golden eggs. Diversification is still important, and the private sector has an amazing way of succeeding despite who is in office. So let go of fear, and invest wisely.