A Stock Market Crash Shield Shines with Gold and Silver

Paul Dykewicz

[Gold bars]

A stock market crash shield in the colors of gold and silver shines brightly as investors increasingly seek to buy those precious metals to profit when stocks sink.


The importance of having investments that tend to climb when equities fall cannot be overstated during times such as now when major U.S. stock indexes plunge. People searching for a stock market crash shield can use precious metals for protection amid the ongoing crisis caused by the deadly coronavirus, also known as COVID-19. 

Gold and silver, real estate investment trusts (REITS), investment-grade corporate bond funds and fixed indexed annuities are among the investments typically favored by those who want to own assets that are not closely correlated with major equity indexes. The inverse relationship between precious metals and equities manifested itself during March 9, when the market endured its biggest drop since September 29, 2008 as gold gained, and on March 10, when stocks soared and gold retreated.

Motley Fool described the one-day descent of 2,014 points, or 7.79%, in the Dow Jones Industrial Average on March 9 as a “stock market crash.” But the Dow gained more than half of that total back on March 10 when it rose 4.89% in volatile trading, after central bankers in other countries voiced a willingness to relax fiscal or monetary policy as an economic stimulus to counter the coronavirus fallout of quarantines in many countries.


Also on March 10, President Trump talked to Republican lawmakers in Congress about offering a broad fiscal stimulus package that would include a payroll tax cut, an infrastructure funding plan, paid sick leave for hourly workers and a possible delay of estimated tax payments for some Americans. Even though passage could be daunting, just floating the ideas may have helped to lift the market.

Precious Metals Traditionally Provide a Stock Market Crash Shield

“The bull market in gold was coming,” said Rich Checkan, president and chief operating officer of Asset Strategies International, a full-service tangible asset dealer in Rockville, Maryland. “The correction in the stock market was coming. COVID-19 may have hastened both but they were coming anyway. Recognizing that and taking advantage of it might be one of the best things you can do with your portfolio in 2020.

“I am not a fear monger. This Is not the end of the world. We are going to beat the coronavirus. The world will still be standing when we do. This is an opportunity to protect the gains you’ve made over the last 10 years in the stock market as you look for new opportunities going forward.”


Rich Checkan, president of Asset Strategies International

A plunge in gold prices on Friday, Jan. 28, on the same day as drops in the Dow Jones Industrial and in the S&P 500, should not raise alarms for anyone, even though gold usually jumps when equities dive, Checkan told me. 

Gold slid that day due to week-long downward pressure on stock prices that caused investors who borrow money for trading to sell the precious yellow metal to cover their margin accounts, Checkan continued. In such instances, an investor who takes out a $100,000 loan to double his available funds to $200,000 in hopes of earning twice the amount of profit must find an immediate source of cash to cover his leveraged position.

Gold and Silver Offer a Sturdy Stock Market Crash Shield


Many investors are willing to take the risk to pursue the potential reward of doubling their returns.

“That’s a very common practice,” Checkan said. “It is wonderful as long as the stock market continues to rise to make new highs.”

Certain borrowers needed to meet margin calls to bring brokerage accounts up to the point where they no longer would be “under water,” Checkan said.

“It is a great time to buy on those dips,” Checkan said. “Gold didn’t fall because of its fundamentals. Gold fell because many investors in the short term were tapping into their security blanket.”

A Golden Stock Market Crash Shield Comes in Many Forms

Precious metals funds and stocks have been among the favorite ways that Jim Woods has used in his advisory services to help investors profit during the past year. He is recommending SPDR Gold Shares (NYSE:GLD) in his Intelligence Report service as an easy way to buy and sell exposure to gold.


Chart courtesy of www.StockCharts.com

In his Successful Investing service, Woods is recommending dividend-paying iShares MSCI Global Gold Miners ETF (NASDAQ:RING) and the Direxion Daily Gold Miners Index Bull 3x Shares (NYSE:NUGT). The first fund focuses on gold mining stocks, while the latter is a 3x leveraged exchange-traded fund (ETF) that should be used only for short-term trades.

Chart courtesy of www.StockCharts.com

Chart courtesy of www.StockCharts.com

Woods further recommends Toronto-based Franco-Nevada Corporation (NYSE:FNV), a dividend-paying company that owns royalties and streams in gold mining and other commodity and natural resource investments. That stock is featured in his Bullseye Stock Trader service.

Chart courtesy of www.StockCharts.com

“Gold is the safe-haven store of value that’s been proven to work for thousands of years, and it will continue to do so in the face of today’s global economic scare,” Woods told me. “When the market is racing frenetically to price in coronavirus risks, the shiny stability of gold looks rationally tempting.”

Paul Dykewicz meets with Jim Woods to discuss investment strategies.

Investing in ‘Hard Assets’ Helps Form a Stock Market Crash Shield

“It is always a good time to establish at least a small position in hard assets if you haven’t already,” said Hilary Kramer, host of a national radio program called Millionaire Maker and head of the GameChangers advisory service. “People usually don’t think about it until stocks are sinking and nervous money crowds into previous metals as the ultimate safe haven, but if you’re simply looking for a short-term trading profit, gold can still go 15-20% higher before stretching its historical limits. Just be sure to take that profit and liquidate your position when the world starts to look like a more stable place

“Then you’ll get a chance to establish a real hedge position at a more reasonable price point, holding on for the truly long haul. That’s the real function of gold. You want it there doing nothing 95% of the time, and then cushioning your portfolio when it feels like the end of the world.”

Gold prices topped out during the current millennium three years after the 2008 stock market crash, Kramer said. That time lag shows gold prices do not move in the opposite direction of the stock market as a perfectly uncorrelated asset, she added.

“It is worth noting that the real gold peak came in 2011 and not 2008,” said Kramer, who also leads the Value Authority advisory service. “It is not about a market crash so much as it’s about shielding your wealth from a potential shift in global risk and monetary policy.”

Paul Dykewicz interviews Hilary Kramer, whose advisory services include 2-Day Trader, Turbo Trader, High Octane Trader and Inner Circle.

Investors also should keep in mind that precious metals such as gold and silver do not offer the kind of 100 percent protection bank deposits provide through the Federal Deposit Insurance Corporation (FDIC), up to $250,000 for each person per bank.

Buy Gold as a Stock Market Crash Shield When Its Price Pulls Back 

“Gold doesn’t always rise when stocks fall,” said Bob Carlson, chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets. “But gold does rise when stocks fall because there’s a crisis that causes investors to seek safety. That’s why it’s a good idea to have some gold in your portfolio. 

“It is also a good idea to own some gold when central banks are easing monetary policy and signaling that they’re comfortable with higher inflation. We’ve been in that situation since late 2018.”

Carlson cautioned that it might be a little late in this phase of the current rally in gold to buy the precious metal. Gold has been shooting higher as U.S. stock indexes have tumbled, he added.

“Most technical indicators say gold is extremely overbought at this point,” said Carlson, who also leads the Retirement Watch advisory service. “If you don’t already own gold, I’d wait for a correction or at least a pause in the rise.”

Bob Carlson answers questions from Paul Dykewicz during an interview.

An open question is whether the kind of catastrophic event or series of calamities that typically cause a stock market crash could occur from the ongoing spread of the coronavirus, which has caused 4,262 deaths and 118,252 infections as of March 10. Public health officials in China at the epicenter of the outbreak caution that the threat of coronavirus could be 20 times more deadly than common influenza.

Even though the pace of the infection’s spread could ease in the summer months as the weather warms and people increase their time outdoors, the coronavirus could cause a second surge of infections in the fall along with the traditional flu when temperatures cool.

Gold and silver traditionally offer a stock market crash shield when equities drop but the inverse relationship is not perfectly in sync. Nonetheless, investors who expect stocks to keep trending down could benefit from owning precious metals with at least a small portion of their portfolios.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street JournalInvestor’s Business DailyUSA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is the editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. Endorsements for the book come from Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Dick Vitale and others. Follow Paul on Twitter @PaulDykewicz.

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