Precious Metals Crash During Market Meltdowns

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FOR EDUCATION ONLY

Precious metals priced in U.S. dollars fall in a period of mass panic and fear because of volatility. When markets undergo extreme selloffs, liquidity evaporates causing volatility to skyrocket.

When the stock market plunges, highly levered investors are vulnerable to margin calls. a request from your broker asking you to deposit more money to cover trading losses, which leads to investors liquidating their high-quality assets such as gold and silver to cover any collateral damage.

Preceding a crash, precious metals soar and become a popular liquidation source for margin calls. A concrete example is the Financial Crisis of 2008 where $8 trillion of stock market wealth vanished, but gold also fell by over 20%.

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