gold, page-2819

hi avgjoe

the experience - long time in equity and gold in house.

all the following is based on my observations

golds price behaviour in an equity market collapse is determined by what preceded it and what triggered the collapse. ie valuation, recession, credit etc


as a general rule - if its risen a long time prior to a correction (2008), it ill be sold off to cover other asset losses. typically that occurs where strong global growth drives both equity pricing + inflation expectations upward - so at point where correction occurs, inflation pressures also recede so gold loses its appeal

if its been falling prior (eg 1999) then it will rise on safe haven bidding during the event - but post event its direction is determined by economic environment.


gold's currency appeal has 2 different drivers
- relative outperformance vs a fiat currency experiencing loss of purchasing power due to inflation or deflation
- systemic risk protection - which is essentially the reason central banks devote some SAA toward gold - though most western banks have long since stopped believing systemic fiat risk is +>0.01%

like you say - qe triggered both hyperinflation expectations + USD weakness + ongoign concern about US financial system - providing both arithmetic and demand volume based price increases

so - this time around we have gold thats been falling for 4 ys prior to a 6month improvement. at same time global debt puts sytemic risk as much more central consideration for investors.

so gold buyers now are not likely buying for inflation protection as in 2006-7 - but rather for systemic risk protection.

havign said that there's no doubt it was the USD TWI having gone to historic high point and then reports of US economic weakness that prompted the initial gold price reversal last year

So now you have 6 months of buying where early adopters (most of people reading this forum i suspect) are people focused on the global debt market risks - and more lately generalist investor funds that follow momeentum

but prior to Nov Gold was in a classic ignored market phase - Canadian treasury sellign its final gold holding was such a classic sign of market contempt for gold - same was happening in 97-2000. i remember reading several such central bank 'we've liquidated most/all of our gold' stores at the time

So in the event there is an equity market correction of significanance
- momentum investors will sell to cover holes
- early adopters will tend to hold - as the correction reinforces their core concerns
- price will drop to some degree because - as you say - there'll be USD strength in a flight to safety for the currency and tbills

Thats why I have the view gold wont collapse but will sell off moderately - because an equity collapse in itself will be seen as underscoring central back impotency, systemic fiat risk - and likelihood of more policy responses that further adulterate major currency blocks.


my 2c