Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

If You Like QE3 But The Stock Market Makes You Nervous - Buy Gold!

Commodities / Gold and Silver 2012 Sep 22, 2012 - 02:53 AM GMT

By: Sy_Harding

Commodities

Best Financial Markets Analysis ArticleQE2 in 2010 and ‘Operation Twist’ in 2011 recovered the stock market from double-digit corrections that were underway at the time, and rescued investors from their extreme bearish sentiment each time.

QE3 is underway and many are convinced that’s all that matters, that a repeat of stock market gains is a sure thing.


You need to realize that conditions are much different this time.

For instance, rather than being down double-digits this time with fears high that it is heading down further into a bear market, the stock market was already near four-year highs, and investor sentiment was at high levels of bullishness and confidence when the surprise of QE3 was announced last week.

Perhaps more significant, in 2010 and 2011 corporate earnings were growing impressively. Profit margins were benefiting from the improved productivity brought about by large employee lay-offs, plant closings, and tax loss carry-forwards from the recession, while corporations with global operations benefited even more from their ties to Brazil, China, India, etc., where economies remained strong and the main concerns were rising inflation.

But this time, those normal driving forces for stocks are completely reversed. The economies of important U.S. trading partners like China, India, Japan, Brazil, and the entire 17-nation euro-zone, have slowed dramatically this year, the euro-zone already in a recession.

And corporate earnings are nose-diving. In the U.S. S&P 500 earnings grew at a huge 45% pace in 2010 as they recovered from the losses suffered in the Great Recession. That unsustainable pace slowed to a still robust 15% earnings growth in 2011.

But this year earnings grew only 0.8% in the 2nd quarter, and the consensus forecast is for negative growth in the current quarter, a decline in earnings growth for the first time since the recession ended. Adding to the deteriorating situation, corporations are warning of even slower sales and earnings going forward, citing slowdowns globally that are beyond the ability of the U.S. Fed to fix.

Global bellwethers Intel, FedEx, and UPS, joined the warnings parade in recent days.

Warnings from major transportation companies, like FedEx (FDX), UPS (UPS), and Norfolk Southern Railroad (NSC), are particularly worrisome, since the DJ Transportation Avg has been in a negative divergence with the rest of the market all year, even before these warnings. In spite of the stock market rally since the June low that has the S&P 500 now up 16% for the year, the Transportation Avg has been hitting lower highs on its attempts to rally and is down 8% from its January high. The Transports often lead the economy and the rest of the market since they see early warnings when shipments of raw materials to manufacturers, and of finished goods to end users, decline sharply.

I seriously doubt that the laws of business cycles have gone away, and I still believe that fundamentals matter.

So with previous global economic strength crumbling, a sharp downside reversal in corporate earnings underway all year, the negative divergence of the bellwether Transports, and the stock market already excitedly rallied to four-year highs, there are reasons to question further bullish expectations for the stock market from QE3 this time.

However, since the Fed’s goal for QE3 is also to devalue the dollar again (in an effort to boost U.S. exports, and to create inflation) if it is to at least succeed with those goals QE3 should light a fire under gold. And it has been doing that.

We are on a buy signal on gold, and holding a 20% position in the SPDR Gold Trust etf, symbol GLD. But while gold has already rallied 15% from its June low, equaling the rally in the S&P 500, at least gold is rallying from an oversold condition after declining 18.5% from its 2011 record high to its June low. And its rally does not yet have it back to its high of last year, let alone to four-year highs like the S&P 500.

So if you expect continuing positive reactions in markets to QE3, gold might be a wiser choice than the stock market.

The world’s largest gold bullion etf is the SPDR Gold Trust, symbol GLD. Canadian investors can choose from six gold bullion etf’s that trade in Canadian dollars on the Toronto Stock Exchange. The largest and most active is the iShares Canada Gold Bullion Fund, symbol CGL-T.

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2012 Copyright Sy Harding- 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.


© 2005-2019 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