The reverse correlation angle seems almost more important. Stocks often have bad sell offs when the dollar is weakening. Treasuries are dollar denominated, gold is essentially neutral. Stocks/bonds, treasuries, gold, cash do make a good combination. Again, normal diversification did not work very well at all in this major correction, and I assume the same could have been said in 29, 37, 74, and I know for sure in 2002. In 2002 corp bonds stunk, while munis did well. This time munis stunk right along with corps.
It’s probably wrong, in this day and age, to expect people to act rationally, but all I can see are the many rational reasons pointing to the expectation that stocks won’t be booming again any time soon (and so gold will hold it’s own if not blow higher.)
1. The economy stinks and returns in the form of dividends stink and will continue to stink for some time.
2. Many people, many of them boomers, just saw huge retirement nest eggs turned into paltry ones in the crash. Will these people be eager to return to the scene of the crime any time soon? I’m guessing not... except the gamblers and the desperate.
3. Along with their 401Ks crashing, so did the value of their other main asset - their home. Most folks are not feeling too flush.
4. People are also worried about losing their jobs, if they haven’t lost their job already.
5. People are saving money, not borrowing money. In order for credit to expand (and bid up stock and other asset prices) people have to borrow.
6. People are saving in three forms today; treasuries, cash and gold. There’s definitely a treasury bubble, and when inflation DOES pick up that bubble will burst and people will be fleeing cash as well. All of this is good for gold.
7. This week’s stock market rally sure looks like a classic dead cat bounce. If it is, and to the degree those gamblers and desperate boomers take still another hit, the stock market is not going to hold the recent lows.
8. Even international economies stink. The world desperately needs economic restructuring and that will take time. The broad stock market will be in upheaval.
So... I dunno... you may be right but it sure looks to me like - putting aside a possible moderate correction - the short range future is likely to be good for gold.
I still only have a small portion of my savings in gold. But I’m buying, not looking to sell.