Surviving the Crash of 1929: How Gold Stocks Defied the Great Depression

The GoldSilver Team
OCT 30, 2023

Ninety-four years ago, in the heart of the 'Roaring Twenties,' America basked in an era of boundless optimism.

It was a time when people witnessed a relentless surge in the stock market, and the promise of riches lured them to invest their life savings. But as history often reminds us, excessive optimism can lead to sudden devastation.

Fast forward to 2023, and we find ourselves in a strangely familiar scenario. The market appears to defy gravity, with valuations soaring to unprecedented heights.

The Shiller P/E Ratio shows stocks are as overvalued today as they were back in 1929 and 2000. Tech stocks and cryptocurrencies mirror the speculative fervor, rising and falling in a way that evokes investment mania déjà vu. It's as though a sense of invincibility has once again gripped the market, a belief that it can do no wrong.

As we reflect on the 94th anniversary of the 1929 market crash, we can't help but wonder: Have we truly learned the lessons of history, or are we treading a path that could lead to a similar reckoning?

Today, we'll explore the parallels between then and now, and how gold stocks emerged as a beacon of hope during the tumultuous aftermath of the crash. It's a timely reminder that amidst the exuberance and excess, there's always a need for a solid and time-tested anchor in our investment portfolios.

But before we embark on that journey, let's catch up on today's news...

JP Morgan Chief Strategist Says To Buy Gold
In a note to clients, JP Morgan’s Chief Strategist Marko Kolanovic said that he is underweight equities and recommended buying bonds and gold, possibly signaling a new shift on Wall Street.
U.S. Banks Are Closing Branches and Laying Off Thousands of Workers
High interest rates and chaos in the real estate industry are combining to put an enormous amount of pressure on our largest financial institutions. Estimates show major banks have cut a combined 20,000 positions this year...
Baby Boomers Becoming Homeless at Rates Not Seen Since the Great Depression
In the early 1990s, only about one-tenth of the homeless were over 65. Today, it’s half, and rising quickly.
China's Gold Consumption Rises 7.32% in First Three Quarters of 2023
Data from the National Bureau of Statistics indicated that the growth rate of retail sales of gold and silver jewelry continued to outpace other product categories. Even in the third quarter, as gold prices remained elevated, the demand for gold bars and coins continued to climb.
Gold Is Outperforming Stocks in 2023
As of Thursday's close, the S&P 500 SPX had gained 7.8% since Jan. 1, while front-month gold futures have gained 9.2% during the same period, according to Dow Jones Market Data.

Shocktober - The Scariest Moments in Financial History

The Roaring 20s – A Decade of Unbridled Prosperity

The Roaring 20s stands as an iconic era in American history, characterized by an unprecedented surge in prosperity. This vibrant decade bore witness to remarkable economic growth and substantial stock market gains that would forever leave a mark on the nation's financial landscape.

Throughout the better part of the 1920s, the American populace marveled as countless businessmen and investors seemingly found the key to wealth and fortune within the stock market. The tax acts of 1921, 1924, and 1926 which reduced taxes on the wealthy from 75% down to 25%. In addition, the inheritance tax was also cut. This new wealth helped fuel a booming stock market.

The financial boom of those days was all about optimism. Families were doing very well, seeing revolutionary new products like cars, radios, and telephones becoming more common. For the first time, regular folks were getting interested in investing their money in stocks and bonds. They did this thanks to a whole new industry of places like brokerage houses, investment trusts, and margin accounts. And that's when things got really interesting...

This made it possible for everyday people to buy corporate stocks using borrowed money. You only had to put down 10% of the stock price, and the rest you could borrow. The stocks you bought were like a promise to pay back that loan. So, lots of folks started borrowing money to invest, and the prices of stocks went through the roof.

In 1927, the Dow Jones Industrial Average gained 33% in a single year. The following year, the Dow began at 202 and ended the year at 300, an astonishing 50% increase. From 1921 to 1929 the Dow increased roughly six-fold. These unprecedented gains instilled a sense of invincibility and unshakable economic optimism among the public.

In 1928, the newly-elected President Herbert Hoover proudly declared, "We in America today are nearer to the final triumph over poverty than ever before in the history of any land.” The prevailing sentiment was that the good times were boundless, and the wave of prosperity would continue indefinitely.

However, as history has shown, this soaring confidence is often a precursor to economic disaster...

The Crash: 1929 – 1932

“You know it’s time to sell when the shoe-shine boy gives you stock tips.” - Joseph Kennedy Sr.

On Black Monday, October 28, 1929, the Dow took an abrupt nosedive, declining nearly 13%. The following day, panic selling saw the DOW drop another 12%.

In the span of a single month, the crash wiped out $16 billion in stock values across 240 companies. To put this colossal figure in perspective, as noted by economists Milton Friedman and Anna Jacobson Schwartz, the entire U.S. money supply in 1929 amounted to roughly $48 billion. The losses incurred by these 240 stocks alone accounted for one third of the entire money supply in the United States.

In an unprecedented move, the Federal Reserve intervened by adding almost $300 million to the reserves of the nation’s banks and lowered their rediscount rate (the Fed Funds Rate today). This temporarily bolstered the economy and in November the Dow began to rebound. There were fleeting moments of optimism as stocks rebounded by more than 20% in just six trading days, enticing more and more hopeful investors to scoop up bargains and reenter the market.

But this glimmer of hope would be short-lived, as the Dow Jones Industrial Average continued its shocking decline, ultimately reaching its bottom on July 8th, 1932, a staggering 89% loss from its peak just two years earlier. It would take a quarter of a century for the Dow to fully recover to its 1929 peak.

Gold During The Great Depression

As most of you know the gold price was fixed during this time, and President Roosevelt nationalized it in 1933. But even though you couldn't directly own gold, investors found a way to capture its upside by owning gold stocks. Gold equities acted as a proxy for bullion during this time and saw huge buy volumes during the Great Depression.

From 1929 until January 1933, the shares of Homestake Mining, which was the largest gold producer in the United States, shot up an impressive 474%. Meanwhile, Dome Mines, Canada’s largest producer, went up 558%. During this same period, the Dow Jones took a beating, losing a staggering 73% of its value.

The remarkable performance of the two largest gold stocks serves as a testament to the resilience of gold investments. What's more, both companies not only weathered the Great Depression but thrived, even substantially increasing their dividends. Homestake's dividend increased from $7 to $15 per share, and Dome Mines' dividend climbed from $1 to $1.80.

During the worst part of the crash, where the Dow lost 89% of its value, Homestake gold stock more than doubled in price. But it wasn’t just during the worst of the crisis that Homestake thrived...

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.

Homestake Mining in the Great Depression

Gold truly proved its mettle during those tumultuous times.

For a more complete analysis of the Great Depression, our very own Mike Maloney created a comprehensive video with all the most important facts everyone should know about that time.

You can watch it for free on YouTube right now. Play the video below.

Gold: A Timeless Hedge Against Financial Storms

The Great Depression was a brutal reminder of how quickly prosperity can crumble and how vital it is to safeguard one's assets. During this era, where stocks took 25 years to recover, gold emerged as a beacon of hope.

Time and time again, history shows that gold can shield your portfolio against the worst economic events.

If you want to add some insurance to your portfolio, consider adding to your position or start accumulating today. GoldSilver makes it easy with InstaVault, home delivery, or private storage.