Another Market Crash?
Thursday, October 1, 2009 at 12:15AM
Gold Prices in Gold Mining Companies
DOW Chart 01 October 2009.JPG

There are a number of people predicting another market crash, similar or even bigger than experienced in 2008. What are your thoughts on this and do you think that Gold and Gold stocks will fall with everything else, as they did in 2008? If not, why would this year be different?

Regards,
AM


The above is a question from one of our readers which we would answer as follows:


Indeed there could be another sell off in the broader markets and the precious metals stocks could well be classified as just another stock as they were last time.

There is also talk of another infusion of cash or a second round of quantitative easing which may help to prop up the markets for a while longer.

Our opinion for what it is worth leans heavily towards gold making record highs and if and when the sell off comes, precious metals stocks may suffer initially but would soon regain their strength as gold is the underlying asset. If we are wrong and gold also suffers then yes the stocks will feel the pain.

One possible defensive strategy would be keep tight 'stops' on our positions just in case, however we risk being stopped out. Another would be to buy a few PUT Options as an insurance against our portfolio heading south, if the worst happens then the PUTS would increase in value thus helping to cushion the fall. Should our tiny sector go from strength to strength then we would run the risk of these options expiring worthless. Another possibility would be to short the DOW and hope that it compensates for any loses suffered in the metals sector. We have been watching such vehicles as SKF for such a trade but it really is dangerous going against Uncle Sam.

This is something that we are watching and if we do move we will post accordingly.


Have a good one.

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