Equities tank, dollar down, gold up

Today (Friday) has seen some disturbing movements in the general equities sector with markets – led by China, which has moved into bear market territory leading the way.  Will the other markets follow – they are certainly heading in that direction.  Investors may have breathed a sigh of relief on Thursday when all the American indices opened lower, but then made good gains in positive territory, only to see all those gains wiped out and much morw in Friday’s trade.  The Dow had fallen down below 16,000 – 3% down on the day – (it was over 18,000 only as recently as early December) while the S&P 500 had fallen to below 1,870, also down 3%, while the NASDAQ had fallen over 3.8% to below 4450.  The markets are volatile and they may recover some but the trend has to be worrying – particularly those who have relied on a fed-fuelled equity boom which at one time was perhaps looking unending to the unwary.  The two weeks of the year to date have certainly provided something of a reality check.

The dollar was also down today per the dollar index – but in fact it only really fell against the three key currencies in the basket – the Euro, the Yen and the Swiss Franc (and marginally against the Yuan).  In virtually any other currency you care to name, including in those of the major gold mining nations, it was actually mostly around between 2-3% higher.

Gold however made something of a recovery from the downturns of the past couple of days and was heading back north of $1090.  Margin calls may reduce gold’s upside should equities continue to dive, as they did back in 2008, but once these were out of the way gold recovered fastest of all more than doubling in price over the following three years.

Are we in for a repeat?  It’s too early to tell, but with markets this nervous it wouldn’t take much to put them into a long downwards spiral.  Maybe the Fed raising interest rates (albeit by a pretty minuscule amount) has been all there was to set the process in motion.  Unintended consequences perhaps?

If the stock price rout continues next week it will once again enhance gold’s position as a safe haven investment in times of turbulence, perhaps reinforced by all the geopolitical flashpoints we are seeing developing around the world.  2016 could very well be an annus horribilis.

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