Tuesday, December 3, 2013

The Great Depression, a Horrible Time in Our Economic History, the Best Time For Gold

The Great Depression was a horrible time in our economic history. Many people suffered, and many families were torn apart. The world had never experienced such an event and none still compares to it. The great depression came out of the United States in the final months of 1929 when the stock market crashed. Here began a painful lesson in how capital markets affected the socioeconomic standards of the world. But gold stood the test of time and proved very reliable.

People, who were in gold investment during this time, were not as significantly affected. Comparatively, as bad as the stock market was, is how exceedingly good the gold market was. In previous years, from about 1880, gold mining companies had difficulties in managing their operational costs. Their cash costs were just too high. Not to mention the fact that more people were investing in stocks, which were going higher, while less people were investing in gold, which made that cost very low. However, all this flipped when the Great Depression began.

Homestake Mining Company was in operation back then and though they had difficulties before; they remained the largest gold producers in that part of the twentieth century. They were within the mid United States of South Dakota. Back then the United States had passed the Gold Standard Act in 1900. What this Act did, was to put all of America on the gold standard. This allowed only one rate of exchange with other countries that had done the same thing as well. This meant that the price of gold was affected only by net asset value, growth rates, cash costs, or production levels. And due to this, no matter how good the gold market was, it could not alleviate the situation or stock prices during the Great Depression.

Homestake Mining Company saw profitable business during this period of growth. Their stocks were one of the highest in the world. Where they sold for far less than a hundred dollars per share, their stocks began being valued at nearly four hundred dollars by 1933. Their dividends were also great. Where dividends were fewer than ten dollars at the onset of the Great Depression, by 1935 it was at fifty six dollars. Gold investors were very happy and secure during this time of economic hardship.

Deflation seriously negatively affected the US dollar in those times; and as you might know, the worst of the US dollar the better the prices of gold and the gold market. Because the prices of gold were fixed back then, many believed that this was a result of the government's earlier decisions. By 1971 this was removed, and yet gold stocks still perform better when the economy isn't. Even in current economic times, the prices of gold is behaving similarly; the worse off the economy the better the prices of gold.

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