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Gold prices about to catch fire as global financial markets tumble?

 -- Published: Sunday, 19 April 2015 | Print  | Disqus 

By Peter Cooper

Should you be stocking up on gold bullion now or waiting to see if the price correction ever reaches the miraculous 50 per cent expected by the chartists? As ever there are no sure answers but the risk-reward ratio is stacked in favor of buying bullion now and riding out any further correction, if it actually happens.

Generals are forever fighting the last war, and so it is in financial markets. Recent memory focuses on the 2008-9 crash. Then gold went down with all ships. However, as a precedent this is weak as gold has done much better in many past financial crises and so the next one could very easily be different.

Different this time?

The commentaries like this will remind you that we did point this out and that you missed one of the greatest opportunities for buying gold as a consequence. For a quadrupling of prices over the next 18 months to two years is perfectly possible. The maximum downside is 25 to 30 per cent with an almost guaranteed rapid rebound, as indeed happened in 2009.

But let’s look more closely at what is happening in global financial markets right now and consider where it might be taking us. This is a geographical tour de force.

First up, Asia looks like the next shoe to drop. Chinese stock markets have doubled in the past year during an economic slowdown because debt-fuelled speculation has shifted from the toxic housing market to equities. The authorities have just pricked this bubble with a clampdown on margin lending.

Where will Chinese retail investors go to next? Gold is about the only other option that they have, and they’ve been the world’s biggest gold buyers in recent years. That sounds excellent news for gold prices from here.


Secondly, the European street theatre that is the Greek debt tragedy is coming towards its inevitable conclusion. A big shake-up in the eurozone financial system will put $200 on the gold price easily.

Third, the US recovery is stalling before our eyes with the hugely overvalued dollar undermining the profits that have supported a hugely overvalued stock market. Does this mean that a stock market sell-off will not push the dollar higher like it did in 2008-9, or at the very least be disproportionately beneficial for the gold price this time around?

Long gold bullion and shorting global equities looks a winning trade for the week ahead.

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 -- Published: Sunday, 19 April 2015 | E-Mail  | Print  | Source:

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