What does this mean for gold prices? Well, the price of gold will likely remain down in the short term, as stocks rally. Also, I imagine the prices will fall somewhat when the IMF sells off 400 tons of its reserves, simply because the selloff conjures up images of excess supply flooding the market and will scare some investors into selling. However, the gold market will most likely bounce bank when it becomes clear that the buyers are mostly the central banks of countries who want to increase their own gold reserves. Particularly in emerging economies like China, Russia, and India, there is a desire to acquire more gold for their reserves and reduce US dollar reserves. So even though this selloff may cause a shockwave, I think it will actually improve the fundamentals of gold, because the dollar's value will fall as it is sold off by these countries' central banks. There won't be an immediate rush out of the dollar, but they will gradually reduce the amount they hold.
As for the equities rally, I think this is another short term rally, and I don't think we've seen the market's bottom yet. This recession (I'm being nice and avoiding the "D" word, even I think that's what we're entering) is far from over. And even when the stimulus finally kicks in, we may see stocks rally again, but with inflated currency - making it an artifical rally, essentially. I have little doubt that gold will outperform stocks over the next couple of years. We are, after all, in the middle of a precious metals bull market that is far from over. Equities are in a bear market. I wonder if people have forgotten that markets are cyclical. They seem to think that equities can be in a bull market forever with only minor short term interruptions. These people are still in denial of what is really happening.
I'm still holding onto all my gold. In fact, when the IMF sells off gold, if the price drops I will be buying more.
Reference: Marketwatch.com
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