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How Will Gold Perform In The Next Market Crash?

By: Peter Cooper, Arabian Money


-- Posted Monday, 11 May 2009 | Digg This ArticleDigg It! | | Source: GoldSeek.com

The multi-billion dollar question for precious metal investors today has to be how gold will perform as this suckerís 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 Ė 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.


-- Posted Monday, 11 May 2009 | Digg This Article | Source: GoldSeek.com


About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in 1999 to complete his first book, a history of the Bovis construction group.

Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.

Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.

He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.

Order my book online from this link




 



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