Gold close to record high as global stocks sell-off

Gold hit $1,240 an ounce today. Investors seem to be increasingly parking money in the yellow metal as a safe haven asset class while turning their backs on stocks. Bond yields are lower than before the 2008 autumn crash, an ominous signal.

Today the S&P 500 index is 14 per cent down from its 2010 high posted on April 23rd as reports on US jobs, house sales and manufacturing have confirmed a slowdown in the very modest economic recovery. The Federal Reserve has said a meaningful recovery may take longer than expected. The S&P is now on a price to earnings multiple of 14, the lowest level in six weeks.

Hindenburg Omen

The predictions of a stock market crash by astrologer Arch Crawford earlier this month and the Hindenburg Omen of two weeks ago are now being confirmed by more traditional data.  Standby for more bad news from the shipping industry.

The crash in the Baltic Dry Index has been widely dismissed. But the same error was made in 2008. Sure more vessels have entered service this year but that does not fully account for the very low charter rates. This reflects the lower volumes of basic commodities now being carried by ships around the world.

It portends a later slowdown in the manufactured products into which these commodities are transformed as well as a slowdown in demand for energy and therefore lower oil prices. Maersk warned in its second half statement that it was concerned about the fourth quarter and its shares fell despite a $500 million profit gain.

This is surely the start of the double dip recession that economists widely dismissed as unlikely earlier this year. That was also the case in 2008 with the IMF firmly against the possibility of recession in August then.

Gold outlook

Will gold now follow the late 2008 pattern and fall in value alongside stocks? Or will it be different this time? Even the real gold bugs are cautious on this but see it as a last buying opportunity before a surge in demand after the stock market crash is over.

ArabianMoney’s best guess is that gold and silver prices will fall but by much less than in 2008. For one thing the speculative positions are smaller and the leverage in the precious metals market much lower than two years ago.

However, the potential for a big gold rally thereafter is strong, and the $1,650 target set by gold guru Jim Sinclair almost a decade ago – to considerable skepticism – looks easily attainable in this environment. For with the rest of the economy looking a complete shambles there will be few obvious places to invest and the narrow gold and silver markets will really take-off.

As for the S&P 500 and Dow Jones, both indexes have traced out a clear head-and-shoulders over the past 12 months and look doomed to a serious decline.