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Gold Sell-Off To Come With a Stock Market Correction

By: Peter Cooper, Arabian Money


-- Posted Thursday, 5 August 2010 | Digg This ArticleDigg It! | | Source: GoldSeek.com

Gold bugs will howl. But it is obvious enough that any major stock market correction – which must be looming on the horizon given this incredibly overbought rally now trading on very thin volumes – will bring gold prices tumbling down as in late 2008.

Is it really any different this time? Well, sadly not, except that the world’s central banks have expended most of their arsenal of weapons. Cutting interest rates is not possible with near zero rates now in place.

Margin calls

So what happens is that stocks sell-off and margin calls are made to investors. They then have to sell something else to pay up. That could be gold, commodities or just about anything.

At the same time the dollar will automatically rally, along with treasuries as markets are liquidated for cash. This increases the demand for dollars and pushes up its value. A rising dollar and falling gold price are a normal correlation, though this does not always apply.

However, gold will not necessarily tumble below $700 as in the spring of 2009. The support level this time is surely around the magic $1,000 mark, and there will be many investors happy to buy into the yellow metal at this kind of discount.

If the 2008-9 sell-off in gold is a guide then the price will bottom out with the stock market. How long will that take? The end of October is one very reasonable estimate. Market falls are generally faster than market rises, and October is traditionally a bad month for stocks.

Continuous rally?

Can we be certain about this? No but you have to consider how likely is the alternative of a continuous stock market rally into the future accompanied by a faltering US recovery?

The unemployment data tomorrow is surely the thing to watch out for. Astrologer Arch Crawford is pretty good at timing his predictions to coincide with major data series as well as planetary movements, and that would be a good reason for anybody to wonder about a crash tomorrow.

But gold will not emerge unscathed when and not if the markets correct. It will, however, be correct to view this as a buying opportunity as the stimulus measures that follow will ultimately be extremely positive for the yellow metal.


-- Posted Thursday, 5 August 2010 | 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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