Lehman totters, gold looks bright

On Monday Lehman Brothers share price closed down 11 per cent. Is Wall Street about to get a repeat of the March sell-off that followed the demise of Bear Stearns?

Certainly if markets follow the pattern of 1973-4 then this slump will be very positive for gold. In that bear market for stocks precious metals more than doubled in a couple of months and held that gain strongly thereafter. If your comparison point is 1978 then this is similarly favorable for bullion and precious metal stocks.

I am increasingly of the view that immediate market prospects are dire, as readers of this blog will be aware from my prognostications on imminent Black Mondays for the credit and equity markets of the world. Even in the oil-rich Middle East nervousness over global bourses is depressing local market confidence as a spot-poll on the Emirates Business 24/7 website showed today.

We live in very nervous times. It could well be that a major market sell-off is imminent with a nice little rally in prospect for the US presidential election. But any student of 1973 will recall that an even bigger slump followed 12 months later, albeit with precious metal stocks acting in an inverse contrary fashion.

To my mind the message in the stars is clear enough. Buying precious metal stocks at current prices is not only sensible, it is probably the best buy of the year. Bullion will also do well, but it could be the stocks that out perform in this environment.

Some readers have asked whether they should continue to sit on the sidelines and buy later. That would be suicidal in my view. The need for exposure to precious metal assets is now!