Tuesday, August 25, 2009
Is gold saying deflation is a comin’
Stocks weren't the only asset class that was a casualty of Friday & Monday 17th big down days. Gold was, too...Nor was Monday's action a fluke. More and more recently, the two asset classes have been rising and falling more or less in unison. It isn't supposed to be this way, of course. Financial planners have told us for decades that equities and precious metals aren't very highly correlated. What's going on? When there is a real worry about a deflationary collapse, then both gold and stocks will tend to become more correlated. That's because gold will go down in price during a period of deflation, just as stocks will also suffer because of the prospect of an economic collapse that the deflation makes more likely. A visit to $700 beckons when the stock market bull goes to bed.