Can you explain this re: gold vs. stock market

[garybeck]

i've had a few gold coins for a few years. nothing really to sneeze at, but it causes me to watch the price of gold.

until now, it has been pretty consisent, when the stock market goes down, or when other economic indicators are bad, the price of gold tends to go up. makes sense, even in my mind and I'm not an economist.

i noticed in the last two days, that trend has been thrown out the window. while the stock market has plummetted, so has the price of gold. when the stock market first crashed a couple weeks ago, gold jumped up, and my local gold coin dealer told me there's talk of gold hitting $2,000 per ounce.

but since then it leveled off and now, the trend of being opposite the stock market seems to have ended. for example, whenever I see the stock market drops a few hundred points, I go to check the price of gold, expecting it to be up... but quite often it's not.

it's counterintutive for me. if gold and stocks are going down together, that means good old cash is going up relative to both. that means people are selling more stocks and gold, and cashing out both.

so if people are selling off their stocks, and their gold, are peole just holding on to cash now? is there a big spike in purcashing CDs and savings accounts?

can anyone explain why the past trend of gold and stocks being opposite has seemingly changed in the last few weeks?

thanks

[HereSince1628]

1. Oil and gold tend to move together...maybe it's the drop in oil price

:shrug:

[Turbineguy]

2. For the West

gold is primarily an industrial metal.

Compare the price of gold as related to tensions between India and Pakistan.

People are in cash and CD's. There seems to be a general scepticism of the Mad Max economic scenario.

[SlowDownFast]

6. Gold is not really an industrial metal.

It has some uses in electronics/conductivity, but it's still not really considered an industrial metal.

Silver on the other hand...

[Mike 03]

3. Hedge Fund Selling?

This puzzles me too. One explanation may be that many hedge funds are being forced to liquidate their holdings in order to meet redemptions. They even have to sell good equities, which is one reason the downturns in the market have been so broad and indiscriminate. These gigantic funds may well own gold and be selling it to raise cash.

[puerco-bellies]

4. Gold is over bought.

It reached as high as 1000oz last march. It will retrace to a stable market value and then trade in range. Once it is in it's trading range gold futures will generally move inverse to the stockmarket as a flight to safety option.

[SlowDownFast]

5. Bucky and deleveraging...

Gold almost always moves inversely to the dollar:





Recently (starting in August), Bucky did a rocketshot:

http://quotes.ino.com/chart/?s=NYBOT_DX

Combine the dollar rocketshot and deleveraging (paper Comex gold contracts sold to cover other market losses/margin calls), the spot price of gold got hammered - though physical price spreads/premiums dislocated from paper Comex keeping physical prices $75-$100 higher than spot, meaning physical is BEST. Major and minor bullion dealers have had little or no stock for about a month now.

Methinks this hammering of gold is about over.

[westerebus]

7. Big sell off by the hedge funds .

Plus those who saw a world wide recession heading out of control,on panic selling and unreal lending by the FED, sold and went to cash. Just what version of cash, yen or dollars, depends on which way you think you would profit most. With cash in hand, they can run up any thing they want to at this point and sell into rallies.

[Jim__]

8. It may be that gold is a hedge against inflation.

In the current economy, there is a high risk of deflation. That could cause the price of gold to drop.