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March 08, 2008

A Super-Dangerous Dow-Gold Divergence
by Alex Wallenwein

Gold's been going up and the Dow has been dropping for months now. If this persists for more than maybe two more months, it can spell utter doom for global equities markets - and will cause a huge explosion in precious metals prices and shares.

The danger of a Dow-Gold divergence lies not so much in the divergence itself, as it does in question of which one of them is winning their perpetual tug of war. Right now, gold is the undisputed winner, and the Dow's losses will only get worse over time.

That, in turn, can mean disaster for the world's retail investors.

As one would expect, this is extremely dangerous for the world's major equities markets Most of them take their cues from the US markets for the simple reason that the US markets dwarf those of every other country by their sheer size and depth. Not coincidentally, the other major stock markets are showing very similar trends:

Even the Indian BSE Sensex has started to turn sharply down in January. If this persists - as it must and will - Indians will regret the day they began to trust paper more than gold - and sold their inheritance for empty promises.

In the past, the fiat-forces of the world have been very diligent and successful in making sure that gold would never rise in the face of a falling Dow for any length of time. It seems they have lost their power. Why that is so is not hard to understand if you watch them flailing helplessly in the quicksand of their own CDO-spawns.

Periods of divergence during which the Dow rose while gold fell were of course not only tolerated, but encouraged. In fact, those used to be the rule - until about March of 2003 when gold joined the Dow on its mammoth recovery trip from the intermediate double bottom reached in 2002 and 2003, as we noted in a series of articles back in 2004.

The next Dow-bottom will plumb depths not seen
since the early 1990's, maybe even the 1980's!

Employment figures, the Thornburg collapse, Carlysle Group troubles, sky-high oil prices, rampant inflation, the dollar-crash, and neverending Fed bailouts of fast failing super banks are pounding the stake deeper and deeper into the global debt-vampire's heart. He will find his much-deserved rest before long. Unfortunately, the portfolios of careless and gullible retail investors, consisting largely of Dracula's debt-spawn, will die along with their master.

The consequences of this development for the price of gold and silver (also discussed in previous articles) are only too evident. Readers may find this overly optimistic, but gold can easily go past $3,000 per ounce this year.

When money (or whatever goes for it these days) comes flowing out of losing stocks in such quantities as will soon emerge, it usually starts looking for some place to go. There will not be many places for it to go outside of the precious metals complex, even as other commodities suffer from the attendant US and global economic downturns. It'll be most interesting to see how long it takes retail investors to figure this out.

It won't be pretty, so better get ready!

If anyone still has money in any stocks or mutual funds, it's time to exit. The sooner the better, because the longer people wait, the less they get for their paper.

And then, guess where they are going to put it?

Got gold?

Alex Wallenwein
Editor, Publisher
The Euro vs Dollar Monitor

Just like driving your car, investing only makes sense if you can see where you are going. The Euro vs Dollar Monitor is your golden windshield wiper that removes the media's greasy film of financial misinformation from your investment outlook. Don't drive your investment vehicle without it!

Copyright © 2003-2008 Alex Wallenwein

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