Friday, October 8, 2010

Gold & the Stock Market

It's nice to see the stock market poised to climb past 11000 at long last, but...

Why is gold climbing at the same time as the stock market?

That's not supposed to happen. Gold is a safe haven investment. The worse things get, the more valuable gold becomes. For example, if we had a president who repeatedly and systematically attacked free enterprise thus tanking the economy, one would expect gold to rise. It is now at a record high.

In the past two years, individual investors have fled the stock market in a big way. People like me have taken their retirement savings out of the stock market and put their nest egg into anything to protect it from the inevitable crash. If you read the Wall Street Journal, you know that trading volume on the stock market is way down.

So again I ask, with gold climbing and volume down, why is the stock market climbing?

Well... I've heard various theories. One, that the Federal Reserve is doing Obama's bidding, propping the market up each time it starts to slide. Another is that despite the bad economy, institutional investors see hope ahead in the November elections, so in this low volume market, their moves have more impact than normal, driving prices up. Plus the dollar is weakening, so it takes more dollars to maintain the same value in the market relative to world currencies, but that gets into economic theories I can't keep my brain wrapped around.

Personally I think it may be partly all of the above; plus, watching the numbers pretty closely throughout every day, I notice the market keeps moving in lurches. Rarely does a rally last more than a day, nor a slide.

I suspect that there are some key money people with a vested interest in the success of the current administration who are hedging their bets, stepping in when things start to slide and stepping out again as soon as they stem a slide.

Whatever the case, the current rise in the stock market is fool's gold. Better to have your money in real gold. Or the mattress. Because the big slide is going to come, and by the time you realize it's happening, it will be too late to get out.