… During the Dow Jones Industrial Average swoon in the midst of the last credit crunch crisis, gold fell about 27% peak to trough. We expect a similar pattern to emerge. Remain short for now!

Market Vitals for July 6th/2012

 Quote 

“Civilized countries generally adopt gold or silver or both as money.” Alfred Marshall

 Of Interest 

Lagarde Says IMF to Cut Growth Outlook as Global Economy Weakens (Bloomberg) 

 Entire Commentary 

Markets yawned at rate cuts from the European Central Bank, China’s “central bank,” and more quantitative easing by the Bank of England. Money is draining from emerging markets, as discussed last week. Corporate earnings forecasts are being managed lower. The global macro view we’ve held for a while seems to be playing out on cue—unfortunately for those of us that live in the real world. Private deleveraging seems to be overwhelming public sector debt creation (or shall we call it the “bastardized Keynesian scream of panic” from clueless policymakers). For as much as we have criticized the Keynesian policies supporting government deficit spending, it seems very doubtful Keynes would approve of what’s going on now, no matter what Paul Krugman or Larry Summers say. Gold is the one asset targeted again, or shall we say, continuously, by global investors looking for a place to hide during this storm.

And from a longer term time frame, it has been very good. But it has also not played the role of safe haven when most needed (see chart below); and we don’t believe it will this time. We think the private sector liquidity demands i.e. need to sell a good asset to cover the ones gone bad, will push gold sharply lower as it did during the initial stages of the credit crunch. 

Action 

During the Dow Jones Industrial Average swoon in the midst of the last credit crunch crisis, gold fell about 27% peak to trough. We expect a similar pattern to emerge. Remain short for now!