Can The 2008 30% Drop In Gold Price Happen Again?

Many don’t remember in 2008 the 30% drop in the price of gold SPDR Gold Trust ETF (GLD) that coincided with the drop in the stock market represented by the Dow Jones Industrial Average (DJIA) which lost 34% the same year. They do remember gold bottoming in November 2008 and taking off to its all-time high in 2011 putting square blame on the financial bubble that had just popped and an uncertain future. It took until March of 2009 for the DJIA to bottom at 6,594.44 before climbing to over 18,000 by 2015.

This rise in the stock market received some fuel from the beginning in December 2008 3 months before the DJIA low with the first round of quantitative easing (QE1) and the beginning of the “wealth effect” which then Fed Chairman Ben Bernanke alluded to in 2010 when he said the following;

Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.

We then got QE2, QE3 and a stock market that moved higher until March 2, 2015 when the DJIA hit a closing high 18,288.63. Gold peaked in 2011 after QE 2 and before QE 3. The stock market was taking over again as the asset to own and with the dollar rise, gold became an afterthought…..