Since the dawn of the 21st century, we’ve experienced quite a few major economic events. Here, we take a look back at some of the biggest, how they’ve affected the world’s economy, and why we’ve been able to put our trust in gold through all of it.
Big Economic Event of 2001
A major economic event doesn’t always start with the stock market. The 9/11 attacks had an immediate negative impact on the U.S. economy.
According to Luis Portes, a professor of economics and finance at Montclair State University, the 9/11 attacks delivered a significant economic shock to the New York City and Washington, D.C., metro areas. But on a national basis, the U.S. economy bounced back a few weeks after the attacks. In making that determination, Portes cites the healthy post-9/11 performance of GDP (a barometer for economic activity), the stock market, the labor market, and consumer confidence.
To illustrate Portes’ point, we can look at a paper published in 2009 by the U.S. Department of Homeland Security, which found that the immediate impact of the 9/11 attacks was a 0.5% reduction in the country’s GDP growth and a 0.11% uptick in the U.S. unemployment rate.
“Unlike many other disasters, the 9/11 attack[s] had significant negative macroeconomic impacts in the very short run,” the paper notes, “and it may well have had significant negative consequences in 2002 in the absence of mitigating actions taken by the private and public sectors.”
The average annual closing price of gold in 2001 was $271.19/oz., only slightly less than its average annual closing price in 2000 ($279.29/oz.).
From 2000 to 2001, the price of gold declined by less than 3%, suggesting that gold saw little change in response to the overall economic impact of 9/11.
For comparison, “In 2000, the Nasdaq lost 39.28% of its value.” Then in 2001, “The Nasdaq lost 21.05% of its value.” Stock prices fell to three-year lows in 2001, according to these CNN reports.
On September 11, 2001, the price of gold climbed nearly 6%, as individuals sought out the safe-haven asset.
Biggest Economic Event of 2002
In the third quarter of 2002, the stock market saw its worst tumble since 1987. During the quarter, the closely watched Dow Jones Industrial Average tumbled 17.9%, reflecting the overall downturn in the stock market. The primary cause of the market’s distress: a sell-off of overvalued internet stocks.
In 2002, the average closing price of gold rose to $310.08/oz., up 14.3% from the previous year. Why? Because when the stock market has performed poorly, historically more people have gravitated toward gold, driving up the price of the yellow metal. This occurrence underscores the safe-haven stature of gold.
Biggest Economic Event of 2007, 2008, and 2009
Anyone who lived through the Great Recession remembers it well.
The recession, which officially stretched from December 2007 to June 2009, was one of the worst financial disasters in U.S. history. The housing crisis, including lax regulation of mortgages and the dangerous proliferation of subprime mortgages, triggered the Great Recession.
According to the Insider news website, the 18-month recession sent the U.S. unemployment rate as high as 10%, caused millions of home foreclosures, erased $19.2 trillion in Americans’ net worth, and created a 4.3% drop in the country’s GDP.
From 2007 to 2009, the average annual price of gold skyrocketed as the U.S. coped with the fallout of the Great Recession. The average closing price rose from $696.43/oz. in 2007 to $872.37/oz. in 2008 to $973.66/oz. in 2009. From 2008 to 2009 alone, gold’s price jumped 11.6%.
By comparison, stocks lost 53.8% of their value from the peak of the recession to the trough, according to Forbes.
As had happened many times before, people flocked to gold during the Great Recession as a way to help shield their assets from financial stress.
“A rise in the price of gold may be a signal that the economy is struggling. As a result, in times of either a crisis or inflation, many [people] turn to gold to protect their principal,” according to a report published in 2013 by the U.S. Bureau of Labor Statistics.
Biggest Economic Event of 2016
In 2016, the citizens of the United Kingdom jolted the world by voting to withdraw from the European Union, a 28-country economic powerhouse. The Brexit vote, as it was called, contributed to geopolitical uncertainty. (The U.K. didn’t formally exit the European Union until 2020.)
The Balance website notes that the Brexit vote dampened growth prospects for U.S. companies operating in Europe, weakened the euro and the pound, and boosted the value of the U.S. dollar.
The year of the Brexit vote, the closing price of gold averaged $1,251.92/oz., up 7.4% from the previous year. The vote led to an immediate spike in the price of gold, and the price subsequently hit a two-year high as people around the world sought out gold as a safe-haven asset amid economic uncertainty.
Biggest Economic Event of 2020
The COVID-19 pandemic and accompanying recession rocked the global economy in 2020. Among the impacts:
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- At least a 2.9% decrease in GDP for most major economies
- A nearly $400 billion loss in tourism revenue last year
- Initial single-digit declines in the U.S. stock market
The economic impact of the pandemic and recession pushed gold to a record-high price last year, when it surpassed $2,000/oz. for the first time and reached an all-time high of $2,072/oz on August 7, 2020. The closing price in 2020 averaged $1,773.73/oz., up 27% from the previous year.
“In uncertain economic times, [people] tend to put their money in gold. So it’s perhaps little surprise that gold prices started to rise at the beginning of the year as the coronavirus started spreading in China and Europe and [people] feared a global economic downturn,” NPR reported in July 2020.
Which economic events could happen in the next 20 years, and what can we learn from the past few decades? Follow U.S. Money Reserve on Facebook and Twitter to stay on top of economic trends and their effect on gold prices.
