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Gold or Silver: Which is Best in a Pandemic-Induced Recession?

Kieran Smith
April 1, 2020

Countless civilizations—from ancient Egypt to Mesopotamaia—have built their economies on the solid foundations of gold and silver bullion. The exchange rate between the two metals dates back as far as 3000 BC.

But while both metals are often lumped together by investors in the commodities basket, the price of each asset is buoyed by different forces.

In recessions, wars, and the many different types of economic turmoil, each metal will behave differently. 

So As COVID-19 spreads like wildfire around the world, let’s ask the important question…

Will gold or silver perform best in a global pandemic?

From ‘just the flu’ to a deeply deadly disease, doctors (and Twitter users) are still trying to understand the virus, and economists are still grappling with the possible effects on business. But anyone can see that hitting ‘pause’ on the global economy by putting one-third of humanity under lockdown will have complications — and lead to a possible recession.

To stop the economy collapsing completely, policymakers are turning to extreme helicopter money and quantitative easing. Pumping money into the economy creates the perfect storm for deflationary metals like gold and silver. And, the wave of fear sweeping over the populations has turned even ‘normies’ into overnight doomsday preppers—stockpiling masks, tinned foods, and sound money metals…

Gold, the 5,000 year-old tried-and-tested ‘sound money’, is typically the first choice of investment. Although it is used in electronics, the bulk of the demand comes from its safe haven appeal—as shown by the buying activity of central banks in uncertain times.

Silver also has safe haven appeal, but typically suffers from a weakened outlook in recessions. The metal has a variety of uses—from stopping Lululemon yoga pants stinking, to turning sunlight into energy in solar panels—and as the economy stalls, demand from industry drops.

But enough theory, let’s look at the data…

How did gold and silver hold up in past recessions?

The Energy Crisis Recession (November 1980 – August 1982)

When Iraq invaded Iran in 1980, the price of oil exploded higher. Inconsistencies in the supply of the valuable commodity then coincided with stagnant economic growth, high unemployment, and high inflation—a dangerous economic brew known as stagflation. Then when Federal Reserve Chairman Paul Volckert tried to tame the inflation through restrictive monetary policy, the brew turned toxic and the U.S. sank into a recession that left stocks, gold, and silver worse for wear.

Gold -46%

Silver -66%

Note: Though nothing was immune to this downturn, gold’s inability to act as a safe haven could be explained by timing. The metal had just emerged from its biggest bull market in history, where it climbed over 2,300 percent between 1970 and 1980. 


The Gulf War Recession (July 1990 – March 1991)

The recession of 1990-1991 had three major catalysts: Restrictive monetary policy enacted by central banks in response to inflation, the banking collapse of the savings and loan crisis, and the oil shock triggered by Iraq’s invasion of Kuwait.

When global markets had finally settled, gold was up, but silver was down.

Gold +1%

Silver -14%


The 9/11 Recession (March 2001 – November 2001)

The dot-com bubble popped in March 2000, and as stock prices declined, internet companies went bankrupt. Then in the following year a series of accounting scandals at major U.S. corporations worsened the downturn. To top things off, the attacks of 9/11 sent markets plummeting, leading stock exchanges to close for several days after the attacks. It only took a few months for markets to recover, but while gold managed to weather the storm, silver lost value.

Gold +5%

Silver -5%


The Global Financial Crisis (April 2007 – March 2009)

The trigger of the biggest recession in recent memory was immortalised in the film The Big Short. This dramatized the subprime mortgage crisis and excessive risk-taking by banks like Lehman Brothers. The collapse of credit bubbles around the world had a global impact, leading stocks to collapse, banks to be bailed out by governments, and prolonged mass unemployment.

Although gold dropped at the beginning as investors ran to cash, it eventually pushed up as silver remained flat.

Gold +36%

Silver -0.5%


Gold or Silver: Which has the most safe haven appeal?

As these historical examples show, In three of the four big recessions of the last 40 years, gold has outperformed silver. The only outlier was after gold’s biggest bull market in history. 

When there is fear in the market, gold is the classic ‘risk off’ asset that has a stronger negative correlation with the stock market. When equities move down, gold moves up, and vice versa.

As we saw in 2008 and with the recent coronavirus crash of Black Thursday, both silver and gold can fall with stocks when global markets decide to jump off a cliff and investors run to cash to cover margin calls. But in the longer term over the length of the recession, gold has consistently demonstrated an increase in value. Silver on the other hand often remains flat during downturns, and has a tendency to lose value due to its high usage in industry.

So bear in mind that if you buy silver to act as ‘insurance’ against the threat of recession, then you may be disappointed. Although its bigger brother gold has significant safe haven appeal, silver Is primarily an industrial metal and is statistically unlikely to ride higher during a recession — particularly one induced by a global pandemic that Is disrupting huge supply chain disruptions.


The information in this article is for informational and educational purposes only and should not be considered financial or investment advice.  

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2 Comments

  1. larryzb

    Can you get silver (the physical bullion) now at the fake paper market price? No, not at the $14 dollar price..

    The recession is not the only issue here. The breakdown of the fiat money system is unfolding. Go long in the physical market (take delivery) of both precious metals.

    Reply
  2. Kieran Smith

    Physical is definitely the way to go, but vaults still have their place.

    Reply

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