Lear Capital’s Kevin DeMeritt on Why Gold’s Post 9/11 Performance Was an Anomaly

While gold prices dipped after the Sept. 11 terrorist attack on the World Trade Center in New York City, the asset’s general performance over time suggests prices will likely remain steady during future major events, according to Kevin DeMeritt, founder and chairman of Los Angeles-based precious metals firm Lear Capital.

After planes struck the World Trade Center at 8:46 and 9:03 a.m. on Sept. 11, 2001, the New York Stock Exchange did not open for trading. When activity resumed on Sept. 17 — the longest pause since 1933, according to The Wall Street Journal — the market declined. The Dow Jones dropped 7% on the first day, reaching its lowest level in approximately three years.

The price of gold, though, rose immediately after 9/11, climbing nearly 6% from $271 to  $287 per ounce the following week, due to what CNNMoney at the time referred to as the global market’s “panicky grab for secure assets.”  

Before long, however, as concerns about subsequent terrorist attacks and oil shipments from the Middle East potentially being curtailed lessened, gas and oil prices — which, along with gold prices, had zoomed higher after the attack — declined.

Safeguarding Investments 

Although gold’s price was again generally trending upward in 2002, throughout the remainder of 2001, its performance was varied. By Sept. 26, the price of gold had risen to $291.45 an ounce. By November, it was lower at $280.30, and declined to $278.15 by Dec. 19. 

The months following Sept. 11 were filled with uncertainty, which undoubtedly carried over into the investing world. In a time of unprecedented events, it’s not surprising the stock market, as well as other types of investments, experienced unusual outcomes in response to the circumstances.

Typically, however, gold prices increase despite political or economic turmoil, Kevin DeMeritt says — making gold a potentially helpful addition to an investment portfolio to offset other investments’ at times lackluster performance. 

“Gold has an inverse relationship to stocks and other types of assets,” DeMeritt explains. “In times of war or terrorism, usually you’re going to find that the markets become extremely volatile. Nobody is certain about what’s going on in the markets from day to day. The volatility of gold is not going to be the same as what we’ve seen with the [current Russia-Ukraine] war, or 9/11, with the stock market. Gold is going to give you stability.”

As the Bureau of Labor Statistics pointed out in an article about gold prices before and after the 2007 to 2009 recession, “In times of either a crisis or inflation, many investors turn to gold to protect their principal.”

Gold’s value, for instance, grew significantly between 2008 and 2012; the producer price index for gold rose 101.1%. Since 2001, gold’s value has actually grown 566%, according to Lear Capital data.

Conversely, the residential real estate market, another potential investment area, produced returns of 3.8% on average from 1991 to 2018, or 9% when factoring in rental income from properties, according to a study conducted in 2020.

The stock market, which tends to exhibit a more reactionary response to interest rate, employment and other economic shocks, has offered annual returns of about 10% — 7% when factoring in inflation, according to the U.S. Securities and Exchange Commission.

In 2022, faced with interest rate hikes and other issues, stock market volatility wiped away more than $9 trillion in U.S. household wealth by September. Gold’s value, though, picked up steam last year. In March, for instance, spot gold prices, which indicate the cost of 1 troy ounce of gold within global markets, surpassed $2,000, according to U.S. News & World Report, reaching the highest level in more than a year.

“One of the biggest misconceptions is that gold doesn’t have this great performance record,” Kevin DeMeritt says. “From the year 2000, if you invested $100,000 in stock, it would be worth around $320,000 today. But if you invested $80,000 in stock and $20,000 in gold, it would be worth $385,000 today — you picked up an extra $65,000 in your bank account just with 20% of your assets in gold. Gold has dramatically outproduced the stock market.”

Gold’s Other Gains 

In addition to favorable returns, gold also, Kevin DeMeritt says, can offer some protection against inflation.

In 2022, inflation rose to 9.1%, its highest point since 1981. When it last hit the lofty levels we’ve seen recently — in the early 1980s — the price of gold increased 147%, according to a Lear Capital analysis.

“It’s been a long time since we’ve had this kind of inflation,” Kevin DeMeritt says. “We’re starting to see more people become concerned about the volatility in the stock market — which happens when you have high inflation — and also the value of their currency. At today’s rate, if I’m losing 7% of the value of my paper money purchasing power because of inflation, gold is going to be a great alternative because it happened, in the past, to be one of the better assets that can offset that loss.”

Due in part to precious metal assets only being available in limited supply, unlike paper currency that can be printed indefinitely, gold generally retains a fair amount of value, Kevin DeMeritt says.

“We can only mine so much gold per year,” he says. “So paper money is probably going to

continue to fall, [as] it has for hundreds of years now, and the price of gold is probably going to continue to increase.”

Given the advantages gold can potentially provide, the asset will likely continue to be considered a beneficial investment option in the future. With numerous economic challenges on the horizon, including inflation’s deceleration, which is expected to take some time, Kevin DeMeritt anticipates the demand for physical precious metal assets, such as gold and silver coins or bars, to increase in the next five or so years.

“I can’t tell you when the stock market or home values are going to fall,” the Lear Capital founder says. “You need something that has that inverse relationship to those kinds of assets. When volatility happens, it can have a devastating effect on investments — especially if you’re retired [and living] on your assets. Let’s have a hedge on the other side that will help you in those dark days.”