Gold and silver were up another 2% yesterday as bargain hunters continue to bottom feed. Oil and most commodities were somewhat higher on news of the Chinese $0.6 trillion stimulus injection while the dollar was flat and the pound fell again (reaching a new low against the euro) due to the sharply deteriorating UK economy.
Gold’s non-correlation with equity markets continues with most equity markets again under pressure today after the Chinese stimulus induced another dead cat bounce which proved to be another false dawn. With recessions only beginning in all major economies and the likelihood that recessions will be protracted and deep, safe haven demand for gold is set to remain robust.
However, anything is possible in the short term and leveraged trading is for the foolhardy. Risk aversion should remain paramount today and in the coming weeks and investors should shun speculative short term get rich schemes for passive long term investing. Value investors should continue to remain properly diversified and maintain a minimum of 10% to 20% of their portfolio in gold bullion. The old Wall street adage of keeping 10% of your portfolio in gold and hoping it doesn’t work has never been more appropriate.
Equities look set to continue to underperform – particularly the financials. Goldman Sachs can be regarded as a form of bellwether or as a proxy for Wall Street and its share price has fallen by some 2/3’s in recent weeks. Goldman has fallen from over $240 to $71 per share. It collapsed just 8.5% yesterday alone. Its performance does not bode well for the US financials and US financial system.