The Market Behavior of Gold During Stock Market Crash

1
42 views
Donald trump inflation

“Just run the presses”

Is a sentence that we haven’t heard for the firs time in history. Donald Trump stated that out together with “just print money”¬†according to Woodward. Trump said that during a discussion on the national debt with Gary Cohn, former director of the White House National Economic Council. Well, what does this mean ? Let’s start from the beginning.

The history of money

In the really early days people would barter, which means people would use a system of exchanging services and goods. Of course¬† that is something for the old days as you wouldn’t be able to pay your flight ticket with your oranges nowadays. So, to create a system that can act as value in a tradable form people used gold as the standard. We have replaced our gold system with our monetary system. And in 1913 The federal reserve was granted sole rights to issue banknotes in the United States.

The differences between a “gold” trading system and a monetary system

There are 2 main differences between gold and money. The first difference is the energy it takes to “create” it. To get a ounce of gold you need to find it, dig it out of the ground and produce it. All that energy is inside that ounce. Money is as simple as to print any kind of paper. You just need to set the order to print.

The second difference is that gold has a limited amount in circulation. Where money just can go to infinite amounts. That has a huge impact on the value of each one of them. You always will have a certain amount of gold, which value is based on your believe, similar as money but your money disregard of your believe can reduce it value just by the total supply of it. If you have 10kg of gold with a 10.000kg available on planet earth you will own 1 percent no matter what happens. If you ow 10$ with a money supply of $10.000 you will own 1 percent. But if money is getting printed to pay off debts or finance war, your 10$ will be 0,5% worth of $20.000.

What actually happens when you run the money presses ?

When the money presses are on and printing faster then the papers that are getting destroyed we see inflation. Every year we see a little bit of inflation. And a little bit also can be healthy as the population is growing as well, but if it’s too much our paper money backed by nothing will even shrink more in value.

The Stock market

A lot of the money being printed end up in the stock market and creates economic bubbles. We have seen it with the Amazon stock. It grew to ridiculous highs and right now at the point of crashing down together with a lot of companies from the S&P500.

What happens with gold when the stock market crashes ?

History has shown us that when the stock markets are crashing gold is increasing in value. Gold even increased in value in the biggest crash in the 2000s. When the stocks dropped 56% in value and lasted for 2 years. When the stock market crashes people lose trust in our economic system and hedge those funds into precious metals like gold and silver.
So basically, concerning history gold is a safe place to store your funds in a stock market crash.

Bitcoin in a stock market crash

This is a very interesting thought as people tend to believe in Bitcoin as digital gold. Only Bitcoin never really was present in a stock market crash and therefor it is really difficult to predict market behavior towards Bitcoin in a stock market crash.

Invest into gold during stock market crashes

Therefor it is important to split your investments and lower the risks of losing capital. Bitcoin would be a good investment but comes with a high risk. It is something new and we still don’t know how the market would move towards it. Gold would be a safer place to hedge your funds and the most safest way to store gold is to buy it as physical gold and keep it at a safe place. If you like to trade Gold or hedge in gold CFD’s we would recommend this broker.

We have weekly market updates and technical analysis on our website and youtube channel where we also include Gold, Bitcoin, cryptocurrencies and the stock market.

 

1 COMMENT

LEAVE A REPLY

Please enter your comment!
Please enter your name here