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The Stock Market Is Overvalued – When Is It Going to Blow?

26 Feb
Overvalued Stock Market

The Stock Market Is Overvalued – When Is It Going to Blow?

Gold Market Discussion

11 Straight Record Closes, But This Market is Overvalued

Stock Market BubbleDespite 11 straight record closes, investors are starting to worry the market is overvalued. Investor pessimism is rising as they start to fear a correction is coming.

Friday marked the first record 11-day win streak for the Dow Jones since 1987. In 1987, the Dow Jones posted a 13-day streak of record closes before abruptly and chaotically crashing in October. This past Friday did see some pull back from stocks early in the session, but as the trading day winded down, the Dow rose enough to achieve the landmark close.

It’s not just the Dow. Gold and bonds are also showing similar patterns to those before the 1987 crash. Gold prices and bond yields are both rising.

What this means for investors: The 1987 Crash saw $500 billion lost in a single day. Many investors are preparing now with gold in case this market experiences a similar crash. Growing pessimism and gold’s 8% rally this year indicates that there is a growing, tangible fear among investors that a sharp correction – if not crash – is imminent.

Gold Breaks $1,250 on Friday and Silver Follows Trend

Gold and silverGold is up 8% this year compared to the 4% roaring rally that the stock market is experiencing. On Friday gold spot price pushed above $1,250 while silver eked out gains to close just over $18. It is no surprise that there is an upswing in safe haven investing as pessimism in the stock market’s rally becomes more apparent.

On Wednesday the Federal Reserve announced that there could be a rate hike next month amid rising inflation pressure. Gold only pulled back modestly following the announcement. Generally, such an announcement would prompt more of a pull back because gold is a non-interest bearing asset.

What this means for investors: Alan Greenspan, former Federal Reserve chairman, issued a caution to investors this week to start buying gold now. Silver looks poised to follow a similar bullish rally. Both metals are off to an optimistic start for the year, and rising inflation and safe haven investing will likely spur them further.

Treasury Secretary Mnuchin Scales Back Growth Projections Moderately Amid Rising Inflation

Secretary of Treasury Steven Mnuchin
Secretary of Treasury Steven Mnuchin

Comments by Treasury Secretary Steven Mnuchin this week pushed the dollar down slightly. In interviews with Fox Business News and CNBC, he stated that tax reform was a priority and sounded markedly less protectionist on trade and border tax than the White House.

The Treasury Secretary also scaled back economic growth projections from what the Administration has been hoping for. Mnuchin stated that 3% growth will take longer than initially expected.

What this means for investors: President Trump and other prominent figures have been saying that the dollar is too strong for some time now. A strong dollar tends to hold back gold prices, which is why gold saw a boost from Mnuchin’s comments. The data is showing that inflation is rising. When the dollar’s current strength breaks down, demand will increase for precious metals.

Russia Increasing Gold Holdings Again

Russian President Vladimir Putin Meets Head of Russian Central Bank Elvira Nabiullina
Russian President Vladimir Putin Meets Head of Russian Central Bank Elvira Nabiullina

Russia has started buying up significant quantities of gold on the price dip at the end of 2016. The Russian Central Bank bought 6.4 million troy ounces of gold in 2016, and has already bought over a million troy ounces in 2017. Russia is fortunate that it can mine and refine gold within its vast borders, which aids in part with its gold reserve holdings.

This report by economic think tank OMFIF states that central banks around the world are upping their gold reserve holdings, and that this trend will continue. The central banks of Russia, China, and Kazakhstan led the way in buying gold in 2016, but they are certainly not the only ones. Germany, for example, has been making vigorous efforts to repatriate all of its overseas gold back to Frankfurt.

What this means for investors: Are central banks finally coming to terms with the array of pitfalls of fiat currency? Gold and silver backed money is the most assured way of ensuring value to currency. The monetary experiments of this decade have served to temporarily plug holes of a broken, global financial system, but there is growing fear – among governments, banks, and individuals – that the levy is going to break.

 

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 Here are some articles from the web discussing the topics in this week’s post:

10 Straight Record Closes, But This Market is Overvalued

Read Here

Gold Breaks $1,250 on Friday and Silver Follows Trend

Read Here

Treasury Secretary Mnuchin Scales Back Growth Projections Moderately Amid Rising Inflation

Read Here

Russia Increasing Gold Holdings Again

Read Here


As always, I encourage you to speak with your broker at RME for more market updates. Expert brokers are available Monday-Friday from 9 AM- 5 PM or by special appointment after hours. Call today at  602-955-6500 or toll-free at 877-354-4040.

“I’ll be keeping a sharp eye on the market and I encourage you to do the same!”

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