Sunday, August 5, 2007

The 1987 Stock Market Crash and Gold

Since we are nearing the 20th anniversary of the October 1987 stock market crash, I started thinking about how the crash affected gold and gold stocks. The following charts were meant to satisfy my own curiosity, but I will post them on here, since you may find them as interesting as I did.

Firstly, lets have a look at the Dow Jones Industrial Average on the date of the crash, just so that we can put things into perspective.

I think the above chart needs no explanations, so let's get right into the gold chart, to see how it held up amidst the chaos.

As you can see, Gold held up very well during the panic, and actually went up, as investors fled into this safe haven metal. This is traditionally what gold has been viewed as, even though in the last year the stock markets and gold have risen and fallen together.

Also, did anybody notice that gold was up more than $24 last week, even though the markets kept on falling. The relationship between stocks and gold may be reverting to their more traditional role.

Finally, lets have a look at how Gold Stocks held up during the stock market crash:

To my surprise, Gold Stocks did quite poorly during this time. I suppose during this time of intense fear, Gold Stocks got thrown out with the bath water. So, in the end, it seems like there might be some value in holding assets other than stocks in one's portfolio.


Anonymous said...

Hi, great chart on gold stocks in 87. I'm just wondering though if the circumstances were the same. The Fed was aggressively raising rates leading into the crash.


Thanks for these useful charts. I am 100% cash--if we get a big crash like in '87 I think a giant sucking sound might be gold stocks even if the price of gold goes up.

Danny Merkel said...

Stock sniffer, I think that's right. If history repeats itself, gold stocks would likely go down in the event of a crash, despite a probable rise in gold bullion.

However, as headlinecharts said, circumstances could be different now, as compared to before. The odds of a crash developing are very small though, so hopefully we won't find out.

SKC said...

great analysis and thanks for that...i agree and was really happy too see evidence of performance of Gold stocks in question is does one buy gold bullion then if the large brokers like citibank etc do not let you buy bullion...only stocks???