The Crash That Changed Wall Street Forever

The GoldSilver Team
OCT 8, 2024

On October 19, 1987, the financial world stood still as markets across the globe experienced an unprecedented meltdown. This day, now etched in history as "Black Monday," saw the Dow Jones Industrial Average (DJIA) plummet by an astonishing 22.6% – a record-breaking single-day drop that still stands 37 years later.

The crash sent shockwaves through global financial systems, wiping out billions in market value and leaving investors scrambling for answers. It wasn't just Wall Street that felt the impact; from Tokyo to London, markets tumbled in a domino effect that highlighted the interconnectedness of the global economy.

Black Monday served as a stark reminder of the market's volatility and the potential for rapid, widespread losses. It challenged long-held assumptions about market behavior and risk management, ultimately reshaping financial regulations and trading practices for decades to come.

In this article, we'll dive deep into the events leading up to Black Monday, examine its immediate impact, and explore the lasting changes it brought to the financial world. We'll also look at how different assets, particularly gold, performed during and after this crisis, offering valuable insights for today's investors.

So, what exactly led to this historic crash, and what lessons can we draw from it in today's ever-evolving financial landscape?

The Markets Before the Crash

The mid-80s saw stock markets soaring. From August 1982 to August 1987, the DJIA surged from 776 to a peak of 2,722. By August 1987, it had rocketed up by 44% in just seven months. The euphoria was palpable, but beneath the surface, whispers of a bursting bubble grew louder.

By mid-October, a series of unsettling news reports begin to shake investor confidence. The U.S. government reveals a trade deficit that's larger than anyone expected, and the dollar's value took a big hit.

All of this at once was too much and the markets began to falter, hinting at the chaos that's about to unfold. Then, on October 16, amidst this turmoil, we hit "triple witching" – a day when stock options, stock index futures, and stock index options all expire on the same day.

Triple witching days can see increased trading activity as traders close, roll out, or offset their expiring positions, particularly in the final hour of trading. This can often lead to increased volatility in the markets. The stage was set for Black Monday.

Black Monday: The Day Darkness Descended

On Black Monday, a combination of automated trading systems, panic selling, and global contagion led to a market meltdown. It was like watching dominos topple, but on a global scale. The world watched in horror as stock markets crashed everywhere.

As the bloodbath in stocks occurred on Black Monday, gold initially climbed $19.90, or 4.2%, to a high for the day of $491.50. But then the metal turned south and settled at $481.70 and the next day slid to $463.20, which was a loss of $28.30, or 5.8%, from Monday's peak.

It turns out that people were busy liquidating anything, including gold, to raise cash. During any crisis, there is a chance that gold goes down for this very reason.

But historically gold has a strong track record of performing well after a crisis. The following graph shows the nine biggest crashes in the S&P 500 since the mid-1970s, when the “gold window” was closed and the price was no longer pegged to the U.S. dollar.

Recovery: The Post-Crash Landscape

Post Black Monday, there was a scramble to ensure such a catastrophe wouldn't repeat. Regulators revamped trading protocols and introduced "circuit breakers" to pause trading during extreme market dips, giving investors a breather and a chance to regroup.

Interestingly, while the markets were in chaos, the Federal Reserve and other central banks jumped into action. Thanks to their intervention, the Dow bounced back from its 22% drop relatively quickly.

As Black Monday shows, gold won’t automatically rise with every downtick in the stock market. Sometimes during the chaos, investors may need to sell whatever assets they have, including gold, for cash.

Yet, history has consistently shown gold's resilience as a safe haven during crises. While many view gold merely as a hedge, its potential as a robust asset during prosperous times is often overlooked.

Many people think of gold only has a hedge and underestimate gold’s power as an asset during good times. Since the U.S. departed from the Bretton Woods system and the gold standard in the early 1970s, gold has appreciated roughly 50-fold.

Moreover, since 2000, gold is quietly up over 800%, outshining popular assets like stocks, bonds, and real estate by a wide margin.

Gold 2000

Your Path to Financial Stability Starts with Gold

In the ever-shifting landscape of global finance, gold remains a beacon of stability. Let us help you harness its enduring value.

If you've yet to include gold in your investment portfolio, consider this your wake-up call. If you don’t secure your financial future with real assets, no one else will.

And for those already invested in gold, remember: we're here to assist you in expanding and optimizing your holdings.

Don't wait for the next market shakeup. Secure your financial future with gold today.