September 16th, 2021, started like most days here at the precious metals desk. We did a few trades, confirmed metals had arrived in storage for others, and it was business as usual. Nothing was on the radar that would have indicated anything special happening in the precious metals markets. But in a few short hours, gold went from nearly $1800/oz to $1750…and then the calls and emails came in from worried investors.
When the gold and silver prices started tanking that day, a long-time client and a good friend, “Richard” called. I had barely gotten my “This is Scott…” out before, without even announcing who it was, he unleashed a barrage of questions: “What’s going on with the gold price? Are the prices being manipulated? Do you think there is something going on in the background driving this 3% drop? Is this the start of a major change in prices? Should I consider selling?” Whoa…slow down.
I couldn’t answer Richard as to why gold was dropping. There was absolutely no news driving the dip. Nothing major was announced and I believe the only thing I saw on the ticker was that US retail sales came in slightly worse than expected. No Fed decisions, no geopolitical actions, no inflation news, Biden didn’t pump another trillion into the system, nothing. From my desk here in Ebmatingen, there was nothing I could see that was driving this.
Nonetheless, while trying to come up with a response in that brief moment, all I wanted to say was simply “Relax”, albeit in the most non-condescending way possible. Just as with the sudden drop in spot prices we saw in March 2020, August 2020, March 2021, and June 2021 (to name just a few), in all cases, prices rebounded, and gold went on its merry way.
I took another similar call that day, and responded to a few concerned emails, but my thoughts were the same: let’s relax and see what happens. Of course, things stabilized, although spot prices have been creeping lower. But you need to consider the bigger picture before making hasty decisions on your metals. As you can see in the chart I included here, things do work out in the end - even more so when you look at gold's performance over a longer period.
10-year Gold Price in USD/oz
Nearly all gold investors, me included, buy and store physical gold for the long haul, and we know that from the moment we purchase. However, some long-term investors can develop “short-term vision” when prices drop suddenly. You can argue it’s human nature: we invest our wealth, and when we see the investment underperforming, even if we don’t realize the loss at that time, panic is normal. But especially when it comes to gold, we must resist the urge to act on that panic…
The Sports Analogy that Comes to Mind
Every time I’ve taken a call or answered an email from a panicked gold client during any of these dips, I think back to a legendary sports story from 2014…at least it was legendary for us Wisconsin football fans. I think you’ll quickly see the correlation to gold prices and panicked investors.
The Green Bay Packers American football team, “our” NFL team in Wisconsin, nearing the end of September in 2014, had won 1 game and lost 2. The win was against a bad team, and the losses were bad games against not-so-great teams. The Packers were hugely underperforming early in what everyone had anticipated would be a great season. The Titanic sinks quickly for Wisconsin fans when our teams don’t do well for a game or two: we assume the worst far too quickly.
Speaking to the media after the 2nd loss of the early season, the quarterback of the team, Aaron Rodgers, delivered this classic line to the panicked fanbase:
“Five letters here just for everybody out there in Packer-land: R-E-L-A-X…Relax. We’re going to be OK.”
What followed immediately after that statement was a superb showing by Rodgers in the very next game, and many thereafter, and the Packers went on to win 11 of their next 13 games that season before falling just short of a trip to the Super Bowl. It was nothing short of a miracle. I remember it clearly: it took only a couple of games and all that negativity from the start of the season simply evaporated. Looking back, we all just wondered, “how could we have been so worried?”
Remember Why…and Above All, R-E-L-A-X
What I finally told our friend “Richard”, and what I would probably tell anyone reacting to quick drops in gold prices, was that he should be patient; let’s wait and see what happens. As with the sudden drops and pullbacks we’ve seen in the last 2 years, gold is bound to recover just like it did in the past. And then we’ll all look back and wonder “why didn’t I buy more at that price?”. Of course, hindsight is 20/20, and buying opportunities are always painfully obvious after we miss them. However, steering clear of avoidable losses is also an essential part of a successful investment mindset and resisting knee-jerk reactions is the surest way to achieve that.
I suggested Richard should think about why he invested in gold originally. Had things changed politically and geo-politically for the better? Had governments stopped pumping money into the system? Did he suddenly trust central bankers to do the right things? Did he need liquidity suddenly? Why not sell when the prices are higher? And more importantly, what would you do with the proceeds if he sold now just for the sake of selling?
Most gold investors buy and store with us for the same reasons: to hedge against a crisis, hedge against market risks, hedge against government repression, gold will always be money, gold has no counter-party risk, and it’s a private, confidential form of wealth (amongst other sound reasons). In essence, it’s a form of insurance: something you pay for that you hope you’ll never need to use but is there for you when trouble hits. I personally learned this first-hand in 2008 – 2013. I’m a believer!
I’m not saying there won’t come a time when you may want, or need, to sell your physical metals. Sure, sudden liquidity needs can pop up in life. And there will be a time when the economy might improve, and there might be a need to diversify to other assets or take advantage of other opportunities. But these should be calculated and rational decisions, based on solid big-picture indicators, actual real-world changes, or important economic and political shifts. Until then, we just need to relax.
If I think about it, I’ve been “relaxing” with my gold and silver holdings since 2007, when I first started buying them. I bought some gold for three figures in 2007, but I also bought some 100gr gold bars for 1525/oz, 1oz bars for $17507oz, and gold coins back in 2011 for around $1800/oz. There have been many pullbacks since then, most of them sudden and all of them short-lived, and while holding my nerve wasn’t always easy, it certainly paid off.
So, the next time gold corrects, and it will happen again, and again, take a step back, take a deep breath, remember why you bought gold in the first place, and RELAX!