The Asset that Soared 100X Past Gold

If you’re a seasoned investor, you’re no stranger to market bubbles. From the Dot-com bubble in 2000 to the housing bubble in 2008, to the crypto mania in 2017, each one has striking similarities.

But even these modern bubbles have nothing on the strange market mania that overtook the Netherlands in the 1600s. This peculiar piece of history was one of the first examples of a market mania, offering some important lessons we can take today.  

But before we dive into that story, let's look at the latest news that's shaping the world of gold and finance.

Global Silver Demand to Rise to 1.2 Billion Ounces in 2024
Stronger industrial demand is causing the global demand for silver to rise. The Silver Institute says demand for silver should hit a new annual high this year, with higher industrial demand acting as the primary catalyst.

Office Meltdown Could Result in Up to $1 Trillion in Losses
The shift to remote work is creating an "existential crisis" for commercial real estate, according to Starwood Capital CEO Barry Sternlicht. The US office market, once valued at $3 trillion, has dropped to $1.8 trillion. This decline has raised alarms over the substantial real estate debt, with a looming $1.5 trillion in loans due for maturity soon.

The Federal Reserve Announces Rates Won’t Change
On Wednesday, the Fed maintained interest rates at the current level, a decision that was widely expected on Wall Street. But policy makers signaled they expect to cut rates later this year, potentially making gold more attractive to investors.

The Regional Banking Crisis Never Ended
New York Community Bancorp (NYCB), known for rescuing assets of the faltering Signature Bank in 2023, is now facing its own challenges. This week, NYCB's stock took a dramatic 46% dive, following an unforeseen net loss report. If this leads to more issues in banking industry, many could look to gold as a safe haven.
It’s a story we’ll certainly be keeping our eye on...

The Gold Standard was a system where a country's currency or paper money had a value directly linked to gold. When did the United States abandon the Gold Standard?

A. 1933
B. 1944
C. 1969
D. 1971

Scroll to the bottom of this email for the answer...

A Market in Full Bloom – Origins of a Market Bubble

The late 1990s saw the NASDAQ’s meteoric rise, soaring five-fold in just over five years. Then about 20 years later, the world watched in awe as cryptocurrencies like Dogecoin skyrocketed 50x in the span of a few days.

Yet, these monumental rises pale in comparison to the bizarre frenzy of the Tulip Mania that swept the Netherlands in 1637.7 During a brief moment of market hysteria, certain tulip bulbs could fetch prices equal to a luxury home...

So, what exactly happened?

Tulips were introduced to Europe from the Ottoman Empire in the 16th Century. Their rarity and unique patterns made them highly sought after in the Netherlands. Over time, these rare flowers became a coveted luxury and a status symbol.

But the Tulip Mania wasn't just about flowers or luxury. It was about futures contracts, speculative trading, and the human psychology of greed and fear. People are overwhelmed with the fear of missing out.

At the time, tulip bulbs were traded in taverns, in a market detached from their physical presence. This was one of the earliest forms of a futures market where contracts were bought and sold based on the future price of the bulbs. The price of tulips began skyrocketing as many believed the flowers could be sold for higher prices in the spring – and that’s when things truly got out of hand.

1637: The Market Goes Haywire

For example, on December 31, 1636, a popular tulip bulb was sold for 125 guilders (old Dutch currency) per pound. By February 3, 1637, the price for that same type of tulip bulb had soared to 1,500 guilders.

At the height of the mania, the most expensive tulip bulb sold, known as the Semper Augustus, went for 5,200 guilders. Considering that a skilled craftsman made around 300 guilders a year, it would take more than 17 years of their salary to afford just one of these bulbs.

According to the Amsterdam Tulip Museum, at the beginning of 1637 tulips were selling for over 100x the price of gold.

Per the Amsterdam Tulip Museum

Now, of course, these gains didn’t last long. The tulip market crashed taking the Dutch economy with it.

In the wake of the crash, there was a wave of legal disputes as buyers refused to pay the high prices previously agreed upon for tulips, leading to a breakdown in the enforceability of contracts.

The Dutch government intervened, attempting to stabilize the situation by offering to honor contracts at a fraction of their face value, but this was not entirely effective. The aftermath left many in financial ruin, but the tulip farmers got the worst of the deal. When the government stepped in to cancel tulip contracts, the euphoric speculators got to back out of their deal, while the farmers struggled to find new buyers at the last minute.

Despite the immediate financial ruin it caused, historians tend to agree that Tulip Mania's impact on the Dutch economy was fleeting. Tulips prices returned to normal levels the following year and the Dutch continued their strong trajectory of economic growth and exploration.

What endures from this episode are the lessons it imparts on the nature of speculative bubbles. The Tulip Mania stands as a cautionary tale of how market euphoria can detach value from reality. It reminds investors of the importance of discerning genuine value in our investments.

Gold During Market Manias

Unlike tulips, gold has maintained its value and relevance through centuries. It’s tangible, has intrinsic value, and is not subject to the whims of speculative bubbles. 

Gold can often preserve, and even grow your wealth during times of crisis.

Gold has remained a safe haven, a hedge against inflation, and a stabilizer in times of economic uncertainty.

The Tulip Mania is one of the first historical examples of a market mania, but it’s hardly the last. There was the South Sea Bubble in 1720, the Mississippi Bubble (1719-1720), the Dot-Com bubble of the late 90s, the housing Bubble in 2007, even the NFT bubble in recent years...

And even after we have seen them repeatedly, millions are still susceptible. That’s because during market manias all rational thought is abandoned, and euphoria takes over.

During market manias, people don’t consider what could happen if things don’t pan out as expected. Instead, people quit their jobs to become day traders, get a second mortgage on their house to go all-in on digital NFTs, or even spend several years' salary to buy the rights to a flower several months in the future.

Currently, we can see similar signs of speculative fever in the markets. Stock valuations soar to new heights, despite underlying economic challenges. Options trading is up 80% since 2019, according to CBOE Global Markets Inc. Since the expansion of legal sports betting beyond Nevada in 2018, the volume of Super Bowl wagers across the country has surged by almost 10X.

We’re seeing an interesting trend of increased risk-taking in society. It's like everyone's looking to take a big gamble.

While it might be tempting to join in on the latest trend or bet, we believe putting your money in gold is a solid move. It's a way to make sure you're protecting your money from the rollercoaster of the market.

In a world where the next big thing keeps changing, gold remains a steady, smart choice for looking after what you've worked hard to earn...

And Friendly Reminder After the Big Game...

Valentine’s Day is approaching fast. Why buy flowers or chocolates that last a few days, when you can give your loved ones a REAL Valentine’s Day gift that lasts generations?

Our friends at Auvere, are offering 15% off discount on pure 22K, 24K and sterling silver jewelry. Each piece is as beautiful as it is valuable and is sure to stun this Valentine’s Day.

All the details are here.

That will wrap up this week‘s GoldSilver Nuggets. We'll be back next week with more gold and silver insights and updates!

Best,

Brandon S.  
GoldSilver

The Gold Standard was a system where a country's currency or paper money had a value directly linked to gold. When did the United States abandon the Gold Standard?

A. 1933
B. 1944
C. 1969
D. 1971

Answer – D. 1971

The United States effectively abandoned the gold standard in 1971. On August 15, 1971, President Nixon announced that the U.S. would no longer convert dollars to gold at a fixed value, effectively ending the Bretton Woods system of international financial exchange. This decision marked the transition to a fiat currency system, where the dollar's value is not backed by physical gold but rather by the government's declaration that it has value.