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First with Financial Comment from Arabia

Gold hits $1,150 but stock market rally fizzles out

with one comment

Stock markets around the world appear to be cooling off as the recent rally comes to an end, while the new all-time high of $1,150 for gold is flashing a warning signal as investors back the traditional safe haven.

News that the Russian central bank has acquired a further 30 tons of the yellow metal rather than see it sold on the open market underlines the increasing role of gold as a currency that can not be printed. Central banks are the money printers so they know this value best.

Dollar rally

But can we now expect a correction in stock markets that temporarily boosts the dollar and sends the price of gold down?

The relationship between the dollar and gold is not a 100 per cent correlation. If you look back over the past year gold is up 10 per cent while the dollar and euro exchange rate is very similar.

Yet even if the gold price weakened a little investor demand is so strong worldwide that this would not last long or the gold price fall very far. Too many would see this as a buying opportunity. The Russian central bank would not be alone.

Indeed, the best trade if stocks do finally correct – and markets always do eventually – would surely be to buy gold or even better gold stocks. Silver should also not be ignored. It moves in step with its big sister, and normally exaggerates price movements up and down.

Gulf bourses

For those who want stock market exposure then emerging markets might be considered again after a correction, and in particular the Gulf States that will benefit from rising global inflation and its effect on the oil price.

Yesterday the Qatar Exchange gained two per cent against the global downtrend. If you are looking for a high growth economy with high exposure to hydrocarbons then buying a portfolio here would make sense.

Short term there should be a rally in bonds but then the bond market too must be nearing a peak. The Fed’s artificially low interest rates have left the bond market massively overvalued, and it is not only the stock market that is due for a crash.

The outlook for bonds is another reason to choose gold and silver.

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Written by Peter Cooper

November 19, 2009 at 7:57 am

One Response

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  1. I thought Russia was selling 30T of gold…not buying

    Ed Note: a state organization is selling it to the central bank…

    MOSCOW (Commodity Online): Russian Central Bank will purchase around 30 tonnes of gold from the country’s state repository Gokhran following the increased international assets held by the country’s top bank, which grew 5.1% in October to $434 billion.

    Guy

    November 19, 2009 at 11:50 am


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