Wall Street Bets on Stocks, Not Gold
The S&P 500 (.INX), Dow Jones Industrial Average (.DJI) and Nasdaq (.IXIC) indexes have all dropped, on average, 33% since September. But investors aren’t moving to typical safe havens.
Rates on Treasury bonds, for example, were actually rising until early November.
Gold is often bought to hedge against the market, too, but not right now. It’s been remarkably tame considering the market’s movements. Since September, volatility, as measured by the CBOE Volatility Index (^VIX), has spiked over 200%.
During that same period, gold moved up, but came right back down to its starting point – around $750 an ounce.
So why isn’t the market bidding up gold in a flight to safety?
The market is expecting a turnaround. Even as the markets tank, Wall Street is looking for things to change course. It’s betting that gold and Treasuries won’t do as well as stocks.
The subtext is pretty clear: With the price of equities at historic lows, we’re looking at a tremendous opportunity.
Unfortunately, very few investors have large pools of capital sitting on the sidelines. And that may be the biggest obstacle to a significant turnaround. The question then becomes, if a turnaround takes longer to materialize than Wall Street expects, how much lower can the market go?
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- I Was Wrong About Gold and Internet Stocks and Real Estate
