“If there’s a problem with the dollar, money flows to gold,” says Ron Goodis of the Equidex Brokerage Group in a Bloomberg article. “Five of the past six bear markets for the US currency have resulted in a higher gold price,” Bloomberg’s Pham-Duy Nguyen adds. The old yeller metal was up over US$9 earlier in the week. Must mean the dollar is in a bear market, perhaps its greatest (and final) bear market.
Gold trades at US$682.30 as we go to print. Is it telling us anything about the stock market or the credit market?
There are many ways to read it. But to us, it shows that there’s profound distrust in the market right now. Banks don’t trust one another. Investors don’t trust earnings. And no one trusts that Central Banks are in control, or can do anything but make the situation worse. It is a bear market in trust (or a bull market in suspicion, if you insist on being bullish).
Either way, we would suggest that all this is rather bearish for stocks. Then again, an overwhelming sense of despair is often a contrarian buy signal. However, as we’ve said before, the trouble with the unknown unknowns is that you just don’t know what they are…and when they’ll come knocking on your door. Being unknown, you probably won’t recognise them anyway, sort of like being trampled by an invisible rampaging Mammoth.
Markets and Money