Gold & Silver Crashes in History: Severity, Duration, and Recoveries

Given what’s happening in the markets, it’s time to look at the history of crashes in gold and silver. And just as important, to see what message we can glean about their recoveries.

Despite the scary market activity, what’s happening to gold and silver, believe it or not, is not new. There have been many periods in history where they have crashed. The reasons vary, as does the severity and duration.

However, the thing to be aware of, as I’ll show, is that they recovered. Always. The only issue is how long the process took and how high they ultimately went.

I specifically looked at three periods that seem to most resemble what’s happening today: the Great Recession, the 1970s, and the Great Depression. This study excludes bear markets or declines after major bull markets, since in my opinion that’s not really our current context.

So let’s take a look at the severity, duration, and recoveries of these three major crashes and see what we can learn…

The 2008 Financial Crisis

It was a different kind of scary, but the financial crisis in 2008 was, like now, deflationary in nature.

The worst of the stock market crash occurred in October 2008. Gold and silver fell hard then too, largely for the same reasons as now, a desperate need for liquidity.

Here’s what that looked like for gold.

The gold price lost almost a third of its value in seven short months.

Like today, investors questioned gold’s safe haven status. I remember fielding literally hundreds of those questions then.

As you’d expect, silver’s decline was even bigger.

Silver’s price was cut by over half, again in just seven months.

But those crashes set up spectacular returns. Here’s what happened next.

The price rose 166% in just under three years.

Silver did even better.

The price climbed 448% in two-and-half years.

The message from the era of the Great Recession is that gold and silver can crash in sudden market shocks. But we also learn that those shocks can draw investors into gold and silver, eventually resulting in much higher prices. In other words, once the initial shock wore off and forced margin sales eased up, investors rushed into gold and silver and pushed up their prices.

The 1970s

The 1970s decade was tumultuous. Runaway inflation, soaring unemployment, crashing stock markets, an energy crisis, and the Russian invasion of Afghanistan.

Gold and silver crashed in the middle of all that. It surely seemed counterintuitive at the time. I’m sure that just like today, a lot of investors were wondering why they weren’t acting like a safe haven.

Here’s what the crash in gold looked like in the mid-1970s…

The gold price fell by almost half. And it wasn’t short-lived, as it lasted for a year and eight months.

This decline was doubly peculiar, because it started almost immediately after US citizens were permitted to own gold again (January 1, 1975). That must’ve puzzled a lot of investors who thought it would rise in response to the new law—surely demand for gold would increase, right?

Here’s what happened to silver.

While silver fell slightly less than gold, the decline lasted longer. And as usual, the price was more volatile.

This had to be a confusing time for precious metals investors. Economic and market turmoil was everywhere, and gold had just been made legal again.

But the selloff didn’t last. Despite any investor confusion at the time, as the crises wore on and investors kept buying gold and silver, the reversals were huge.

Gold bottomed in late summer 1976. Then this happened.

Gold rose 440% over the next 3+ years. Much of that happened in the final year, though the price had doubled before that year began.

Here’s how silver performed after recovering from its crash.

The price rose over 9-fold, over a period of about four years. Like gold much of that rise occurred in the final year.

The lesson here is similar to the 2008-2011 period. Precious metals crashed in the initial shock to the economy and markets. But they rebounded spectacularly as more and more investors sought them out as a safe haven.

Those that held on, despite any confusion over the initial crash, were handsomely rewarded. The wait was worth it.

The Great Depression

You might wonder why we’d look at the Great Depression, since not only was the gold price fixed with the US on a gold standard, it became illegal to own with Roosevelt’s decree in April 1933.

But what US investors could own was gold stocks. They became the proxy for gold since they couldn’t own the metal itself.

Here’s the total performance of the two largest gold stocks vs. the Dow during the span of the Great Depression.

From 1929 until January 1933, the shares of Homestake Mining, the largest gold producer in the US, rose 474%. Dome Mines, Canada’s largest producer, soared 558%. This while the Dow lost 73% of its value.

Further, you could’ve bought both stocks at half their 1929 price five years earlier, which would have led to gains of around 1,000%.

That's not all: both companies raised their dividends during the Great Depression; Homestake's dividend went from $7 to $15 per share, and Dome's from $1 to $1.80.

Part of the explanation is that miners had a guaranteed selling price (since the price was government-fixed), which benefitted them because their operating costs were falling. But it’s hard to deny what investors thought of gold stocks then: in a period of crashing markets, soaring unemployment, and soup lines, investors flooded into gold stocks during one of history’s biggest deflations.

If we pull back and look at the bigger picture, Homestake outperformed common stocks for an incredible 15 years.

From 1925 to 1940, Homestake shares rose 10-fold, while the Dow basically went nowhere. And notice the highlighted pink section… during the worst part of the crash, where the Dow lost 89% of its value, this gold stock more than doubled in price.

We’re not seeing that yet of course, and we don't know exactly what an untethered gold price would have done during the depression. But given the only way to own gold at the time was through gold stocks, this shows that once this rout in forced liquidation is over, gold could easily rebound.

Are Gold & Silver Done Falling?

No two selloffs or recoveries are the same. This one will have its own DNA, too.

But as these three major crashes show…

• Gold and silver eventually responded to the crisis of the time. In all three instances, prices ultimately soared.

You’ll notice this occurred during periods of both inflation and deflation. While they both tend to do better in inflation, they ultimately rose in response to crisis.

Which of course is what we have on our hands now. History says that despite the current selloff in gold and silver, the crisis will draw in more and more investors and as a result, eventually impact their prices in a major way.

Keep in mind that as Mike pointed out in his video this week, it’s not even about investment demand for gold and silver. It’s about monetary demand. With the extreme monetary actions being taken now, monetary issues will almost certainly overwhelm central bankers, politicians, investors, and citizens. This reality, once it begins to play out, will push investors into gold and silver like we’ve never seen before.

I encourage everyone to stay the course. And make sure you’re prepared.