The Great Depression that affected the world, followed by world war 2 which was met with the cold war soon after and again when the first and second oil crisis strapped the world, all of which happened in the past century These phenomenal economical setbacks set the Dow to Gold ratio to a value of 4 regardless if the economies of the world were improving or vice versa. This ration took a new negative turn when it fell to 8 in early 2009.
This event sent out a signal that turned the gold market into a raging bull as investors and hedge fund managers tried to secure their asset by buying gold. The mass gold buying and gold selling frenzy caused the demand for gold exceed the supply. The precious metal trade and industry was experiencing the biggest growth of all time while the economies of the world started to collapse. Gold behaves the opposite of stocks in terms of reasons behind the increase or decrease in its prices.
The indicators that influence the value of the gold bullion is commonly referred to as stock though the behaviour of stocks and gold bullion vary greatly. Gold is regarded by some as a store of value which goes without saying does not experience growth whereas stocks are regarded as a return on value and deemed as positive or negative revenue. Stocks and bonds on the other hand are said to differ as they usually pay out the best returns during times of peace and political stability when the economy of a region is experiencing positive growth. At the same time gold behaves differently as it only becomes more than just valuable during times of instability and social unrest.
This phenomenon occurs due to the fact that people usually abandon paper currencies, stocks and bond as economies collapse as these things eventually become practically useless as opposed to gold, silver and other precious metals whereby the tangibility of it is retained. During times of war precious metals in any form are considered ‘real money’. The gold price peak of 1980 is a typical example of what transpires when uncertainty deals the calling card.
The Soviet Union’s invasion of Afghanistan during that year was deemed as an expansion of communism by many and set of a gold buying spree by the general population of the free world during that time as buying gold in times of uncertainty is a common practice amongst people with money.
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