Why Gold Flourishes in Times of Market Volatility, War, and Crisis

man stress because of economic recession

It’s no secret that gold makes a worthwhile investment. For years, investors have purchased gold in times of crisis to protect their investments from market fluctuations and significant financial losses.

One of the most attractive features of gold is its unique ability to hold its value even when the market dips.

Now that volatility seems to be increasing in the market these days, investors are looking for more stable investments. Gold and other precious metals hold a reputation for maintaining valuable stability in times of high market volatility. 

Purchasing gold in times of crisis and war is not a new practice. We can trace gold’s reputation as a safe haven asset back decades.

Why Gold Flourishes in Times of Market Volatility? This article will review gold trading environments and the financial value of this precious metal throughout history.

Gold in Times of Crisis and Market Volatility

Experienced traders and investors love flocking to gold when equity markets show signs of instability. Investors in gold must analyze price behavior and keep track of market activities and interest rates. 

ETFS Physical Precious Metals Basket Shares

ETFS Physical Precious Metals Basket Shares (GLTR) are exchange-traded products that allow investors to track gold performance in the market.

Data suggests that now is a good time for investors and traders to enter the market, assuming they are willing to accept risk. Regarding risk management, investors can expect stop-loss orders set below $64 for the time being.

SPDR Gold Shares

SPDR Gold Shares (GLD) show that the price of gold has experienced a steady increase over the last 18 months. Currently, SPDR gold shares show that medium-term momentum has a faster growth rate than long-term momentum, indicated by the divergence of the 50-day and 200-day moving averages.

As a result, the current market gives investors and traders an exceptional risk and reward setup.

Gold’s Powerful Role Throughout History

gold bars in a pitch dark background

Gold is more than a powerful investment. Throughout history, people have used gold to seek refuge in times of crisis by using it to gain safe passage across borders and even bail out entire countries. 

We can see the historical and societal value of gold around the world. Below are some famous examples of how nations relied on gold in times of crisis and war to find refuge and economic freedom.

Gold and Vietnam Refugees

Many Vietnam residents began fleeing the southern part of the country following the war in 1976. Although force accounted for part of this mass exodus, it also resulted from government discrimination and a fallen economy. 

Refugees fled the country by claiming spots on large ships run by smugglers. However, since the Vietnamese communist government often supported these ships, only those who could pay the smugglers and government officials could secure a spot on the boat.

Generally, the smugglers and government officials demanded between 10 to 12 taels of 24 karat gold per adult; children had a price of one tael.

Most Vietnamese refugees used Kim Thanh gold bars. This form of payment consisted of two large yet slim bars and a single small bar wrapped together.

Since they used rice paper to cover the bars, the total weight of the payment was one tael, making them easily portable.

While some Vietnamese people used Kim Thanh, many others did not store their wealth in gold. For those without gold bars to find safe passage, they had to convert their current assets.

Thus, the Saigon tael banking system arose in the 1970s, allowing refugees to convert their belongings and assets into gold.

In addition to gold bars, many refugees kept gold rings and jewelry on them as emergency currency. This part of history reflects the true value of gold as it helped refugees flee from their damaged homes to a new life abroad using a universally accepted currency.

South Korea and Gold Mobilization

In late 1997, South Korea began experiencing an economic crisis. With an overwhelming external debt, the South Korean government called on the International Monetary Fund for a multibillion bailout package.

Unfortunately, this call gave South Korea the largest bailout in history, creating a national embarrassment and leaving a mark on the South Korean reputation. 

To restore the country’s reputation, the government made a spontaneous decision to start mobilizing a gold collection campaign. The goal was to help pay off the country’s international debts and rebuild its economy. 

The campaign encouraged Korean citizens to sell their gold for prices below market value to show their love for their nation and come together to help get South Korea out of debt.

The citizens’ sold gold was melted down and turned into gold bars, which the government sold on the international market. 

The campaign was a patriotic success as Korean citizens lined up by the dozens at central banks to sell their gold assets. These assets ranged from wedding rings to gold watches and buttons. 

Citizens of all societal classes joined the campaign, including famous baseball player Lee Chong-bum. The Korean baseball player sold 31 ounces of gold from his trophies and medals to his bank.

From January to April 1998, the South Korean patriotic gold collection campaign collected $2.13 billion worth of gold (about 227 tonnes). The gold came from 23% of South Korean households. 

This incredibly successful move by the South Korean government and the people allowed the country to fully repay the International Monetary Fund three years ahead of schedule. 

Gold in Times of Crisis in Argentina

the argentina flag

When it comes to economic downturns, Argentina is all too familiar. From 1989 to 1990, the country experienced hyperinflation. Then, only a decade later, they suffered through an economic crisis from 2001 to 2002, during which the value of the peso reduced by 75%.

Like any knowledgeable investor would do, many Argentinians turned to gold in response to the constantly fluctuating economy. Since the government imposed various banking restrictions, capital controls, and banking account freezes, many residents started buying physical gold.

Their gold assets came in several forms, including Chilean gold bullion coins, British gold Sovereigns, and South African Krugerrands. 

In addition, many Argentinians possess various other gold items, including jewelry. As a nation familiar with extreme market fluctuations, the Argentinian people rely on their gold for emergency funding and wealth preservation.

This indeed shows the incredible stability of precious metals, even in extreme economic crises.

Gold As a Hedge Against Inflation in Venezuela

Another South American country, Venezuela, finds itself too familiar with economic crises. The country experiences hyperinflation and a collapsing currency on top of social unrest and various other troubles. As a result, the country has essentially replaced the paper currency with gold. 

Venezuelans use gold for almost everything, including bartering and paying for goods. In many cases, citizens use gold to pay for food directly. 

From dealers in the El Silencio district to nearby nations like Columbia, Venezuelans are acquiring their day-to-day necessities by trading their gold possessions. Even real estate agents are receiving their payments in gold. 

Venezuelans rely on gold in times of crisis to keep themselves afloat with a collapsed economy and no sign of recovery. For Venezuelans, gold continues to be a means of survival. 

Gold for Food in Zimbabwe

the zimbabwe flag raised in sky

Zimbabwe shares its economic struggles with many of the previously mentioned countries by experiencing a period of hyperinflation. However, for the people of Zimbabwe, their financial struggles primarily result from election fraud, government corruption, dictatorship, and an economic collapse. 

Due to excessive money printing in 2007, the country’s economy met with severe hyperinflation. As a result, Zimbabwe’s annual inflation rate increased to 231 million percent, while the value of the Zimbabwean dollar decreased by 99.9%. 

With the historically high levels of hyperinflation, many Zimbabweans struggled to find basic necessities. Eventually, the country adopted the bartering and trading system, which led to many food suppliers only accepting gold. 

Zimbabwe is rich in gold resources; however, most of its people have had to resort to illegal means of gold mining. 

Due to the country’s various economic struggles, Zimbabwe became the first country in the 21st century to experience hyperinflation. Now, with an abolished government, the country is preparing for another round of hyperinflation.

However, those with gold are more prepared for the impending crisis than others, showing the unique stability of precious metals once again. 

Learn More About the Value of Gold Investments

Gold, silver, and other precious metals have a historical reputation for providing valuable stability in times of market instability. From bringing an entire nation out of debt to being a means of acquiring food, gold continues to play a critical part in both national and international markets. 

Whether you want to learn more about a mutual fund or explore precious metal investments, the experts at the Oxford Gold Group can help. 

Are you curious to learn more about why people rely on gold in times of crisis? The Oxford Gold Group can help you explore the various financial benefits of gold and help you start your investments. Call us at (833) 600-GOLD to get started. 

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