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What was the best asset class to buy for the recovery that followed the 2008-9 crash in global financial markets? Step forward gold whose rise was only exceeded by silver.
Precious metals not only delivered the fastest recovery from that huge sell-off but offered increases way above the pre-crash levels. Gold tripled from its low in the crash, while silver went on to record an eight-fold increase, still just shy of its 1980 all-time high.
Deja-vu all over again
It is not hard to see history repeating itself all over again. Just look at the Chinese central bank this week cutting interest rates, just like the Fed had to do in 2008-9.
Back then that lit a fire under precious metals because of the inflation that was likely to follow. And inflation certainly did follow if you think about house prices and stock market prices but they were slower to deliver returns to investors than gold and silver up until 2011 when precious metal prices peaked.
They have now endured a four-year bear market and are perfectly positioned at much lower levels for a very strong rebound. On the other hand, global financial markets are still overvalued, even after the corrections of the past couple of months.
In that same time we have seen the gold price bottom out, advance $90 an ounce and then come back $40. All financial assets are currently very volatile but gold is still up in price and not down like stocks.
Going up or down?
The only reason that investors are hesitating to pile into precious metals is that they recall the 2008 collapse in their prices during the global financial crisis and hope that this will happen again to provide them with an even better entry point.
Will markets really be that kind to them? The prudent investor says it might be wise to start buying gold now in case it does not go down this time, and if the anti-gold camp on Wall Street has one single valid point it is that gold and stocks do not correlate.
Those Wall Street commentators dancing on the grave of gold have perhaps got the wrong funeral here: ask not for whom the bell tolls, it tolls for thee…