Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Stock Market Rescued by the Fed Again? - 24th Sep 21
Are Amazon Best Cheap Memory Foam Mattresses Any good? Bedzonline £69 4ft Small Double ECO Example - 24th Sep 21
Evergrande not a Minsky Moment - 24th Sep 21
UK Energy Firms Scamming Customers Out of Their Best Fixed Rate Gas Tariffs - 23rd Sep 21
Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Should School Children be Jabbed with Pfizer Covid-19 Vaccine To Foster Herd Immunity? - UK - 23rd Sep 21
HOW TO SAVE MONEY ON CAR INSURANCE - 23rd Sep 21
Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
Trading Crude Oil ETFs in Foreign Currencies: What to Focus On - 22nd Sep 21
URGENT - Crypto-trader event - 'Bitcoin... back to $65,000?' - 22nd Sep 21
Stock Market Time to Buy the Dip? - 22nd Sep 21
US Dollar Bears Are Fresh Out of Honey Pots - 22nd Sep 21
MetaTrader 5 Features Every Trader Should Know - 22nd Sep 21
Evergrande China's Lehman's Moment, Tip of the Ice Berg in Financial Crisis 2.0 - 21st Sep 21
The Fed Is Playing The Biggest Game Of Chicken In History - 21st Sep 21
Focus on Stock Market Short-term Cycle - 21st Sep 21
Lands End Cornwall In VR360 - UK Holidays, Staycations - 21st Sep 21
Stock Market FOMO Hits September CRASH Brick Wall - Dow Trend Forecast 2021 Review - 20th Sep 21
Two Huge, Overlooked Drains on Global Silver Supplies - 20th Sep 21
Gold gets hammered but Copper fails to seize the moment - 20th Sep 21
New arms race and nuclear risks could spell End to the Asian Century - 20th Sep 21
Stock Market FOMO Hits September Brick Wall - Dow Trend Forecast 2021 Review - 19th Sep 21
Dow Forecasting Neural Nets, Crossing the Rubicon With Three High Risk Chinese Tech Stocks - 18th Sep 21
If Post-1971 Monetary System Is Bad, Why Isn’t Gold Higher? - 18th Sep 21
Stock Market Shaking Off the Taper Blues - 18th Sep 21
So... This Happened! One Crypto Goes From "Little-Known" -to- "Top 10" in 6 Weeks - 18th Sep 21
Why a Financial Markets "Panic" May Be Just Around the Corner - 18th Sep 21
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21
Is This the "Kiss of Death" for the Stocks Bull Market? - 14th Sep 21
Where Are the Stock Market Fireworks? - 14th Sep 21
Play-To-Earn Cryptocurrency Games Gain More and Is Set to Expand - 14th Sep 21
The CashFX TAP Platform - Catering to Bull Investors and Bear Investors Alike - 14th Sep 21
Why every serious investor should be focused on blockchain technology - 13th Sep 21
SPX Base Projection Reached – End of the Line? - 13th Sep 21
There are diverse ways to finance the purchase of a car - 13th Sep 21
6 Tips For Wise Investment - 13th Sep 21 - Mark_Adan

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold and Financial Crisis

Commodities / Gold and Silver 2010 Aug 14, 2010 - 12:36 PM GMT

By: Clif_Droke

Commodities Best Financial Markets Analysis ArticleAt what point does a market crash translate to a lengthy bear market and/or an economic recession? This question was taken up by a celebrated historian of the early 20th century, one Otto C. Lightner.


In 1922, Lightner chronicled nearly every major economic depression in the known history of the Western world in a 400-page volume entitled “The History of Business Depressions.” Lightner’s comprehensive chronicle of business depressions contains much that is applicable to today’s economic situation following the credit crisis. (It must be noted that before the Great Depression of the 1930s, the word “depression” was used without distinction to describe what could either be considered a mild recession or a major depression.)

One interesting example of an ancient economic crisis was detailed by Lightner, who explained the Roman debt crisis of A.D. 33. This particular crisis had some amazing parallels to the credit crisis of recent times. The Roman debt crisis began by a series of money panics attended by a number of runs on Roman banking houses.

“A description of the panic,” wrote Lightner, “reads like one of our own times: The important firm of Seuthes and Son, of Alexandria, was facing difficulties because of the loss of three richly laden ships in a Red Sea storm, followed by a fall in the value of ostrich feather and ivory. About the same time the great house of Malchus and Co. of Tyre with branches at Antioch and Ephesus, suddenly became bankrupt as a result of a strike among their Phoenician workmen and the embezzlements of a freedman manager. These failures affected the Roman banking house, Quintus Maximus and Lucious Vibo. A run commenced on their bank and spread to other banking houses that were said to be involved, particularly Brothers Pittius.”

Lightner continued, “The Via Sacra was the Wall Street of Rome and this thoroughfare was teeming with excited merchants. These two firms looked to other bankers for aid, as is done today. Unfortunately, rebellion had occurred among the semi civilized people of North Gaul, where a great deal of Roman capital had been invested, and a moratorium had been declared by the governments on account of the distributed conditions. Other bankers, fearing the suspended conditions, refused to aid the first two houses and this augmented the crisis.”

The crisis was solved by the emperor Tiberius, who "suspended temporarily the process of debt and distributed 100 million sesterces from the imperial treasury to the solvent bankers to be loaned without interest for three years. Following this action, the panic in Alexandria, Carthage and Corinth quieted."

After surveying depressions over a period of more than three thousand years, Lightner went on to make the following provocative statement: “What we lose in depressions could easily pay our national debt.” While it’s somewhat debatable that this statement would apply to the present time, there’s no denying there is at least a ring of truth to it, especially as the tally of losses from the 2008 credit crisis continues to mount.

In “The History of Business Depressions,” Lightner also made the following observation: “Panics do not necessarily bring general depression. We have had many panics that have passed away without affecting more than the financial centers, and these only temporarily. Some of them never got on the first page of the newspapers. As to whether or not a panic will lead to depression depends upon whether its force has broken the credit structure. If the prosperity phase of the cycle has not run its course, and inflation has not reached its height, a panic will have little effect on business in general. If, however, it happens at a time when inflation and speculation have run rampant, and the elasticity of credit has reached its limit, then depression will result because there are no resources at hand to stem the evil effects.”

This is one of the important principles Lightner discusses in his book, namely that of inflation running its course. We can see this principle in action in the many stock market panics of the period between the 1980s and before the credit crisis of 2008. Panics in the stock market during that 20-year period were typically followed by a quick recovery because the stock price inflationary trend of those years hadn’t run its course. The same could also be said for the temporary setbacks (mostly regional in nature) for real estate prices in those years. But when inflation has completed its course and the long-term cycles are no longer supportive of the uptrend, a panic will often be followed by a business recession and prices will be quite slow in recovering.

This brings us to an observation about the price of gold. Gold was liquidated along with every other financial asset imaginable during the worst part of the 2008 financial crisis. Yet gold alone recovered in quick fashion and ended up making a new all-time high while other stock and commodity prices remained well below their previous highs. Gold passed the 2008 crisis test with flying colors while other asset categories still haven’t fully recovered. Hence gold has taken the torch away from investments that dominated the last century and we see that the inflationary trend in the gold price hasn’t run its course yet.



Lightner also made some interesting statements about the demand for money in times of economic difficulties that has a particular bearing on the gold price. The demand for gold in recent years is a reflection of the fear and uncertainty among investors, which is a spillover effect of the credit crisis. It’s also based on a latent belief that gold is money. In his book, Lightner observed that “The use of money as a store of value diminishes its efficiency for the purpose for which it was intended. It therefore increases the demand for money since an inefficient instrument does less work.” Gold as a store of value, as opposed to its industrial applications, is the main driving force for the yellow metal and will likely continue to be so for some years to come.

How to Trade Gold & Gold Stocks

Gold and gold mining shares offer excellent trading opportunities for retail traders due to their liquidity and tendency to trade in repitive patterns. By using a series of reliable technical indicators and moving averages, a trader can realize immense gains over time sticking to a trading discipline proven to work. It was to that end that I wrote, “How to Trade Gold and Gold Stocks” at the commencement of the gold bull market in 2001. The book discussed a number of simple yet effective techniques for profiting in the gold and PM shares markets. Also included are considerations for sound fundamental analysis of the mining stocks.

Now in its third printing, “How to Trade Gold and Gold Stocks” has been updated to reflect changes in the PM markets. Click here to order:

http://www.clifdroke.com/books/book01.mgi

Order your copy today and receive as an added bonus a copy of my latest booklet which discusses the best long-term moving averages to use with stock trading.

By Clif Droke
www.clifdroke.com

Clif Droke is the editor of the daily Gold & Silver Stock Report. Published daily since 2002, the report provides forecasts and analysis of the leading gold, silver, uranium and energy stocks from a short-term technical standpoint. He is also the author of numerous books, including 'How to Read Chart Patterns for Greater Profits.' For more information visit www.clifdroke.com

Clif Droke Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in