For weeks we watched stocks rise while gold and silver prices pulled back. Observing this, it would be easy for any investor to get caught up in the markets while ignoring gold and silver as viable diversification tools.
In mid May, while stocks reached record highs, gold prices pulled back to their lowest levels since January 2011. Since then, the Dow has given up more than 500 points while gold prices have edged higher and stubbornly refused to drop below their two-year lows. With the cost of gold production now estimated between $1200 and $1300 an ounce, analysts believe the gold price can’t go much lower. Indeed, the recent rise in demand for physical gold gives credence to this thesis.
Stocks, on the other hand, raise a big question mark when asked how low can they go? Keep in mind, stocks have likely been the beneficiaries of massive Fed stimulus. Yea yea! Not everyone agrees with that but when you pump up the economy by 6% and only get 2.5% growth, the other 3.5% had to go somewhere. You tell me. When the last round of Quantitative Easing was announced, the Dow was at 13,500. Until $85 billion a month of Fed easing could take effect, the Dow fell to 12,500 before Superman caught it in freefall and started the Dow on its upward march to record highs.
Is the Dow headed south again? Back to pre-QE3 levels? The Fed has intimated a ...