How will gold perform in the next market crash?
Posted on 11 May 2009 with no comments from readers
The multi-billion dollar question for precious metal investors today has to be how gold will perform as this sucker’s rally in stocks goes spectacularly bust.
Retail equity investors will surely wake up last, having not noticed that insiders and professional traders have been putting their shorts on or selling in the past week or so.
In the equity rout we saw last autumn gold and silver stocks plunged with the rest, and even the precious metals themselves were sold off as funds scrambled to raise cash to meet margin calls. Will it be the same story this time?
Bond and dollar weakness
It has to be said that the straightforward dash from equities to bonds no longer looks such a sure bet. Bond yields have been rising, and prices falling recently, and many professional investors are seriously worried about the risk of putting money in bonds which are supposed to be the safest of safe havens.
Is it not possible then that gold and silver will now take up this role, and that therefore precious metals rather than bonds will be the principle beneficiary of the next equity crash?
Certainly the fall in the dollar index at the end of last week to levels that foreign exchange markets see as a sell indicator could be a signal that a dash for cash will not be so evident. The Fed is printing money with a vengeance and bond markets are facing an oversupply of new issues.
Selling equities for dollars and bonds is the perfect rotation for the investment sector but in serious recessions markets have a nasty habit of not behaving according to the best laid plans. In short, the models made under one set of economic circumstances can not handle a new reality, like quantitative easing.
Gold stock implications
Whether this is an argument for staying long on gold and silver stocks into an equity collapse is harder to tell. A rising tide raises all ships, and a storm tends to sink them.
It could be a time to lighten up on the momentum driven larger stocks, although whether selling smaller stocks makes much sense is not clear – many of them have barely recovered from the last rout.
However, the big call is on precious metal prices in an equity crash. Will money flow into gold rather than bonds, or at least enough of it to raise precious metal prices? That looks increasingly likely, and if prices rise so should precious metal stocks.
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A huge crash of assets and equities. Banks and major industries on life support, Record debt defaults and rising unemployment. Consumer and industrial femand down disastrously. No confidence in leaders or financial systems. Enormous plunges in tax revenues. $12 trillion in various bailout pledges. Record deficits, Slide toward socialism and fascism. China, Russia, Middle Eastern countries and private investors buying gold with both hands.
If one would think this is a scenario for gold to pass $2000 on the way to $5000, on ewould be proven wrong so far.
Although jewelry and industrial demand has slumped, teh slack has more than been taken up by investment demand. Yet, it languishes. Could this have anything– anything at all– to do with massive shorting, selling and leasing of gold by government- coordinated forces? It seems so.
GOLD will hit around 2K very, very SOON…and Silver will follow accordingly. The signs have been here for quite some time. However, it is hard to pass on the current financial profits, that is if you have the stomach for it’s roller coaster ride. Buying GOLD/SILVER now will make you a lot of money for a long time to come!