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Occasionally a stock market crash occurs. Look at the first chart which compares the ongoing bull market in stocks (S&P 500 as a leading indicator) with the 1987 stock market bull run.

SP_500_2009_2014

The stock market selloff of last week seems to be “old news” but from a chart point of view there has been significant damage. The most likely message of the market is that this is a major warning, say the first shot across the bow.

The second chart shows how a major trend line has been broken, no matter whether the stock market recovering meantime.

SP_500_1994_2014

Our financial world seems more unstable and more dangerous than usual. Is there room for a precious metals investment in this environment?

According to Gary Christenson, precious metals analyst and author of the book “Gold Value and Gold Prices From 1971 – 2021” writes, the rally into the mid 1970s and the subsequent correction is quite similar to the rally into 2011 and the correction since then.

gold-price-monthly-1968-2014

Even with the prospects of a stock market crash scenario, our belief is that gold and silver would hold better than stocks, based on the following factual observations. First, geopolitcal tensions keep on rising around the globe. Second, although we do not like it, Ebola is expanding a an alarming rate. Third, precious metals have been decimated since their top in 2011, while U.S. stocks indexes are trading close to their all time highs; we believe the downside in gold is more contained than in stocks. Fourth, gold is increasingly behaving like a safe haven trade, as explained in our post last week. If these trend are about to continue, they have a fair chance to offset the recent strength in the U.S. Dollar.

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