Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24
THE GLOBAL WARMING CLIMATE CHANGE MEGA-TREND IS THE INFLATION MEGA-TREND! - 3rd May 24
Banxe Reviews: Revolutionising Financial Transactions with Innovative Solutions - 3rd May 24
MRNA - The beginning of the end of cancer? - 3rd May 24
The Future of Gaming: What's Coming Next? - 3rd May 24
What is A Split Capital Investment Trust? - 3rd May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Investors Fooled by Talk of Economic Recovery

Stock-Markets / Financial Markets 2010 Jan 26, 2010 - 08:59 AM GMT

By: Miles_Banner

Stock-Markets

Best Financial Markets Analysis ArticleWhat a week we’ve just witnessed. In 3 days the entire gains in equities in 2010 have been wiped out. The Dow, Nasdaq and S&P 500 all fell into the red for the year to date. The gold price dropped to its’ lowest in a month. And this all happened at a time when investor confidence had started the week at a 27 month high according to the VIX index…


The CBOE Volatility Index (VIX), also known as Wall Street’s fear gauge, is widely regarded as the best measure of investor confidence in equities. If you look at the chart below you can see that at the start of last week the VIX was at a 27 month low. This means that investors were less fearful of big falls in share prices… They were optimistic. The Investors Chronicle ran an article titled ‘Low volatility signals end to credit crunch’. People were beginning to believe in the recovery. A survey carried out by the Bank of America Merrill Lynch measured fund managers attitudes, it reported –

‘Fewer investors are protecting themselves against a fall in equities.’ And the head of European Equities strategy at BofA Merrill Lynch Global Research, Gary Baker was quoted as saying "This survey is one of the more bullish we have seen and suggests that investors buy into the idea that this recovery has legs,"

VIX index chart

But, as the chart points out, those legs are still standing on shaky foundations. In three days the VIX index shot up 55 percent, constituting its biggest three day jump in almost three years.

The FTSE 100 lost 32.11 points. The S&P 500 dropped 3.9 per cent. The markets experienced a huge volume of panic selling.

What happened?

Following an embarrassing defeat for the Democrats in Massachusetts, a state that has long been a liberal stronghold [click here to read the Less Obvious Consequences of the Massachusetts Election] Barak Obama attacked the US banks, promising reforms to curb the risk taking of bankers at Wall Street. Soon after, Ben Bernanke’s support for another term as the chairman of the Federal Reserve was under doubt which only added fuel to the spiralling sell off and the uncertainty in the markets.

Wall street and traders around the world reacted by pulling the rug from under the so-called recovery.

As we noted last week, the giant carry trade in the US dollar [see The Three Major Questions That Will Determine the Gold Price in 2010 ] has widely been used to fund the growth of higher yielding, riskier assets. This recent, sharp sell off and flight from risk has resulted in these assets being liquidated and a minor unwinding of this colossal carry trade. The dollar rebounded as a result of this and it’s identity as a risk averse holding. And, as we’ve noted before, a dollar rally isn’t good news for the gold price.

Last week’s gold price in US dollars

It, seems as a result of the carry trade, assets across the board suffered. But whilst gold was hit by a wave of short term selling it still managed to put the brakes on just under $1100. Monday’s trading will give us an indication of where we’re heading but signs were that bargain hunters were buying positions when the price dropped to anywhere near the $1080 mark.

Twice in the second half of December the gold price experienced similar falls to near $1080, but were quickly retraced higher.

The price would have to drop below $1000 and stay there for the long term picture to turn bearish. In this case we’d look to see if India, China and other central banks would look to add to their reserves [click here to see what events were happening when India bought 200 tonnes of gold in November 09 ].

This recent turn of events has woken people up to the real possibility that this credit crisis isn’t over. Now investors and market watchers the world over are asking is this a definitive market top that will lead to a resumption of the bearish trend? Has this been one giant bear market rally fuelled by an excess of liquidity in the system?

The evolution of this economic crisis has taken another twist. We’ll keep you up to date with what’s happening every week, continue reading us next week as we unravel the next moves in the markets and assess the impact for gold.

Digger
Gold Price Today

P.S Digger writes a weekly email analysing the gold price and the gold industry. Visit Digger at Gold Price Today (http://goldpricetoday.co.uk).

© 2010 Copyright Gold Price Today - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in