As History Repeats Itself, Time to Buy Gold and Silver

 |  Includes: GLD, SLV
by: Peter Cooper

39197167_goldHistory does not repeat but it does rhyme, said Mark Twain. For an excellent assessment of what a stock market crash can mean for the future we have only to turn to The Great Crash 1929 by Professor JK Galbraith.

It is all there, a complete repeat of the run up to the stock market crash of last autumn, and its consequences - thus far. There was the Florida real estate crash as a prelude to the main act, and then a 50 per cent plunge in the Dow Jones in late 1929, just like the one in 2008.

March rally

March 1930 saw a huge rally in stock prices. March 2009 has just given us the biggest rally since 1974 (a previous market crash year). But hold on a minute, what does JK Galbraith tell us happened next?

In 1930 stocks weakened a little in April and then moved sideways into June when they plunged down again. Then they continued falling month after month for the next two years.

Our governments know this, and it does help explain the rush to push money into the economy by means fair and uncertain. The aim is clearly to break the cycle and avoid the down trend.

But will it be successful? Nobody really knows. Is it worth trying? Yes, but the evidence so far is that the Great Recession is tracking a course that is out-of-control, or rather following a pattern last seen in the 1930s.

Perhaps we should be more optimistic, and think that something more like the 1970s ‘lost decade’ is upon us. 1974 was a terrible year for global stock markets and was followed by stagflation - a mixture of low growth and high inflation.


Indeed, inflation is the only way to bail out an economy consumed by debt. In the 1930s debt deflation was allowed to take its disastrous course with public spending cuts and trade barriers making an already deteriorating cycle considerably worse.

However, anybody who has just bought into the stock market rally should really think about selling and staying out for a while. This is a time to park money in gold and silver and even exit cash, although you might care to note that cash and precious metals were the best performing asset class of the 70s, while in the 30s gold was the real star.