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August 1987 seems relevant today

Silver has suddenly dropped to lows not seen since the beginning of 2016. The $14.41 price as this is written on Aug. 15 came about rather suddenly.

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Only one day ago, it was still over $15. This is nothing to write home about, but a 60-cent drop in 24 hours is rather startling.

It was only two months ago at a coin club dinner that my end of the table was discussing whether silver would pass $17. It did briefly.

Something clicked in my brain about August 1987. I remember silver acting peculiar then. It was not long before the stock market crash of Oct. 19, 1987.

You might wonder what the particulars are. I had to look them up. My imperfect memory gave me the motivation to do it. Here is what I found:

Silver opened August 1987 at $8.78 an ounce. On Aug. 7, it dropped by 67 cents to close at $7.59. Prosperity was reigning. The stock market was booming. We were all going to get rich.

In this regard, conditions seemed very similar to those today about the state of the economy.

But silver did not feel right to me. It closed the month at $7.38. It closed September at $7.50. Big deal, right?

On the day of the crash, Oct. 19, silver rose a bit to $8.19 from $7.88 the prior trading day, Oct. 16. But you have to remember that silver closes each day nearly two hours earlier than the stock exchange. That extra time amped up stock losses. Silver’s turn followed.

The next day, silver dropped 98 cents to $7.21. By the end of October, it was $6.95. It bottomed out at $6.27 Nov. 5. It closed 1987 at $6.68. This was down 24 percent from that strange day in August.

Why am I bringing this up now? Well, August is typically a slow news month. There is good reason to call it the dog days of summer. But this story did not end in 1987.

That funny August marked the beginning of a long slide.

Silver closed 1988 at $6.04.

At year end 1989, it was $5.21.

The close of trading in 1990 saw it at $4.19.

The end of 1991 saw silver at $3.88.

By the last trading day of 1992, it was $3.67.

The turnaround came in 1993. At year end, silver was $5.09. This price followed August 1987 by nearly six and a half years. It was still below August 1987.

Perhaps this historical information seems alarmist or quaint. But I think it offers a good reason why the experts say don’t hold more than 10 percent of your investable assets in precious metal.

Optimistic forecasts are wonderful things to read. But you need to be ready to survive being blindsided.

This lesson also demonstrates why it is better to collect coins and enjoy numismatics rather than speculate in bullion.

This article was originally printed in Numismatic News. >> Subscribe today.

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