Is Stock Market Volatility Helping Gold Move Higher?

If the whole world was clamoring to buy gold, there wouldn’t be enough of it to go around. In fact, the whole world should be clamoring to buy gold based on the fact that gold has appreciated by more than 173% against all world currencies the last 10 years as seen in the charts below.

But is worry about the stock market decline causing investors to go to cash moving the dollar higher AND at the same time pushing gold higher because of it being a perceived safe haven?

Do you have any other investments that have done this?  The stock market the last 10 years hasn’t returned much at all and if you take into account the depreciation of the currencies, you lost more than you thought (sorry to be the bearer of bad news).
If you look at the price action of gold today, you’ll see that in spite of the U.S. Dollar still moving higher, up over 84 on the Index, Gold priced in U.S. Dollars is also moving higher.
Gold Prices

Gold Chart

Momentum Buying

So why is there strength in buying gold today in the U.S. if the Dollar is also higher?  Some may perceive gold as a safe haven to counteract the over 3% decline in the Japanese NIKKEI Index last night, along with continued selling today with U.S. stocks.  But investors remember not too long ago when the U.S. and World Markets declined, gold fell in price with the U.S. Dollar rise.  Have things changed this time around?  It looks like they are.

Added to this move higher in gold though is the weakness in many of the hard currencies and other countries currencies as seen with the Canadian Dollar, Australian Dollar and Brazilian Real in the chart below where all of them are presently down more than 1%.  This is bringing on a whole new round of buyers.  Along with stock market volatility, this can’t be overlooked from a gold buyer perspective.

Of note above is the strength today of the YEN.  This could be a short term effect based on the move out of the NIKKEI into cash by Japanese investors.   Remember, Japanese investors saw the NIKKEI lose over 75% of its value from high to low.  The cautious traders have moved to cash.

But the Japanese government doesn’t like the fact the YEN is so strong.  They would rather see the YEN trade at 120 to the U.S. Dollar.

While gold could very well take out a new high on this momentum, there is one indicator that I’d like to see break out, at least from a trading perspective where I’d like to see confirmation.  That indicator is the HUI breaking above its January high of 475.32  (for those that don’t know, I am a believer in physical gold and write about the trading side for those who are ok with risk).

Chart courtesy of the Ron Rosen Market Timing Newsletter

Checking the U.S. markets just now, the DOW is currently down 500 with a half hour of trading to go after a plunge of  around 1000 points earlier in the trading session.  CNBC is trying to blame this decline on a human error or “blip” where a trader hit the “B” button for Billion rather than the “M” button for Million.

Either way, the fragility of the stock market is evident.  Gold still provides a hedge against this uncertainty.

The charts I quoted above are now showing a further deterioration in currencies across the board.  The YEN however broke below 90.  I would recommend shorting the YEN here by dollar cost averaging into a position.  My reasoning was explained in this post.

For now, gold is king and still the place to be, whether you are in the U.S., Europe, Australia, Japan or Canada.  Those in the U.S. are receiving the added bonus of dollar appreciation.  Things are happening much faster than the Fed would like and the IMF can’t bail out everyone but is meeting soon to discuss.

Warning to Stock Market Investors on April 9th

On April 9th I cautioned investors on the stock market;

Is the stock market indicative of the overall economy?

The answer is a resounding no.  The current stock market rise is a cyclical movement within an overall secular trend.  The bottoming of the stock market doesn’t arrive until we are at single digit P/E ratios.  Even the international and emerging markets are looking dangerous at present.

The stock market has enjoyed some green shoot activity from the Obama administration in helping out the auto industry, housing industry, financial industry and even the appliance industry, but anything the government does is not a fix for the economy.  Enjoy it while you can.  The government green shoots are only a delay of the inevitable bust.

The market is down about 355 points at the close.  I’ve experienced quite a bit of movement just in the time it took to write this article.  If things can happen this quickly with the stock market, how quickly will gold double in price if things get really bad?

Something to think about if you don’t own any….

To show you how volatile things are, in the couple hours it took me to write this article, look at how fast the charts from above changed:

What a day!

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About Doug Eberhardt

Doug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534


Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don’t trade with capital you can’t afford to lose. This is neither a solicitation nor an offer to Purchase/Sell futures or options. No representation is being made that any account will or is likely to achieve gains or losses similar to those discussed in this outlook. The past track record of any trading system or methodology is not necessarily indicative of future results.

All trades, patterns, charts, systems, etc. discussed in this outlook and the product materials are for illustrative purposes only and not to be construed as specific advisory recommendations. All ideas and material presented are entirely those of the author.

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