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What Does It Tell You When the Stock Market is Breaking Down and Gold is Running Up?

28 Oct
Stocks Tumble

What Does It Tell You When the Stock Market is Breaking Down and Gold is Running Up?

Gold Market Discussion

It was a rough week for the stock market. 

Commentators and headline writers are calling it everything from a rout to a bloodbath.

The Dow Industrial average is down 8.4 percent from its recent record high.  The Nasdaq market is 13 percent lower, while the S&P500 is off about 10 percent. The fun of the last few years looks to have ended for the popular FANG stocks — Facebook, Amazon, Netflix, and Google.  They  are off 33, 19.75, 28.8, and 16.4 percent respectively. In aggregate value, the companies on the S&P 500 have lost about $1.7 trillion in just a few weeks. Globally, equity market losses are nearing $9 trillion.

That’s big money.

The dollar headed down on Friday as well. Now, is all this action simply because the Fed is raising interest rates?  Not at all.  The story is bigger than that. 

As we have been shouting, the central banks of the world don’t want to be fleeced by the American money printing presses.  They no longer have faith in the dollar as the world’s reserve currency. Market analyst David Rosenberg tweeted as much this week: “Go ahead, blame Powell.  Don’t tell anyone that foreign buying of Treasury debt has been cut in half this year and keep it a secret that the dollar share of world FX reserves has shrunk to a 5-year low of 62.5%. The USD role as the reserve currency is on its last legs.” Gold, on the other hand, has moved higher, just as you would expect for a haven from the stock market carnage and loss of faith in the dollar.

What does it tell you when the stock market is breaking down and gold is running up?

Remember that stock markets are generally thought of as leading economic indicators:  signaling broader economic conditions to come.  Now they are experiencing their worst October since 2008.  You probably remember what happened in 2008.  It wasn’t pleasant. Market commentator Michael Shedlock says the question is whether we will experience a sharp economic crash or a slow bleed.

In either case, you will want to protect yourself and your family by owning gold.