E Tuesday Talk: Fool's Gold Or Gold's Fool?

U.S. market futures are trading in green territory as traders and investors return from the Presidents Day break which included lots of (continuing) cold weather across the country, as well as Trump's acquittal in his second impeachment trial.  Market sentiment seems to remain positive based on continuing progress with both COVID-19 vaccinations and Biden's stimulus package. The energy sector is strengthening thanks to the cold front while gold bulls take stock.

Wall Street, Investing, Finance

Writing in Should Gold Bulls Worry About A Market Crash?, TalkMarkets contributor Jordan Roy-Byrne says he's been in the precious metals sector long enough to know that fear of a near term crash in the market is nothing new. Here are some of his thoughts and how such fears could play out for gold investors.

"This view is that the stock market will crash, which will cause a crash in Gold and gold stocks, and only after that happens can Gold and gold stocks go to the moon...With the Fed remaining accommodative, more free money coming from Uncle Sam, and the business cycle turning up, the probability of a crash this year is low. However, a sharp correction and a partial unwinding of some of this newbie speculation are quite possible...Over the past six months, precious metals have corrected as they should have. They had an amazing, record-breaking run last spring and summer and a sustained correction was to be expected. During that period, investment capital and hot money have flowed into just about everything else. The S&P 500 is up nearly 20%. The CRB index is up 25%. Bitcoin has gone parabolic. Gold and Bonds have performed the worst, and that is during a slight decline in the dollar."

Below is the chart followed by a few of Roy-Byrne's assumption and his conclusion:

"Let’s assume there is a 20% decline in the stock market, and capital flows back into Bonds and the US Dollar. How is that going to be a negative for Gold and gold stocks when they have declined during a period of hot money inflows into everything else? Instead, it is more likely to be a major catalyst for Gold and gold stocks...A sharp correction in stocks and other risk assets may be needed to put precious metals in position for the next breakout and impulsive advance. Gold and gold stocks could sell off a bit but would reverse well before the end of the correction."

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