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Sunday, June 13, 2010

Gold and the Bear Market

With gold continuing to surge and the market continuing to fall, I thought it would be instructive to review how gold fared during the last bear market.

During the first half of the bear market, there was a strong negative correlation with gold and stocks. However, once once the selling started in earnest - gold was not spared.

2 comments:

  1. and...? could it be that the two situations are ever so slightly different? for instance, could it be that a sovereign debt/currency crisis has a different effect on gold than a private sector debt crisis? just asking.

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  2. Hi Trotsky,

    I think the sell-off above was caused by the major players liquidating assets in order to maintain capital ratios, cover debts, restore confidence, etc. All of these deals and requirements are denominated in dollars/euro.

    In the event that the big players need to liquidate again due to the sovereign debt issue, they will be raising cash - not gold.

    Gold might do well before the panic and it might do well after the panic, but it probably won't do well during the panic.

    Best,

    Mike

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