Imminent Market Meltdown Spells
Misery for Most; Profits for Gold Bugs
Marc Davis, BNW Business News Wire
Something wicked this way comes! So, be afraid. Be very afraid.
(Unless you’re a gold bug).
The recent rally in American and Canadian equity markets is soon
to give way to a gut-wrenching collapse that will push equities to shocking new
lows, with gold prices reacting by rallying to new highs.
After having correctly anticipated the timing and extent of the
March 9th to April 3rd market rally, this is the latest dire warning from Heiko
Seibel, a leading German stock market strategist.
The Director of Research for Munich-based CM-Equity AG now
believes that the U.S. benchmark S&P 500 Index will dramatically drop to an
ultimate low of around 450 points in late June or in July. The odds favour him
being proven right – that is if his talent for correctly anticipating market
“Within a few weeks, we will see the stock lows of our
lifetimes,” he nonchalantly declares.
Indeed, he was right on the money when he told BNW Business
Newswire on March 2nd that the S&P 500 Index was about to reverse a pronounced
downward trend. He suggested at the time that it would rally to a high of not
much more than 850 points during April before it begins an orderly retreat that
soon turns into a panic-stricken rout.
The S&P 500 closed at 856.56 on April 9th – the culmination of a
very impressive five-week gain of 26% over its March 09th low. However, this
rebound cannot gloss over the fact that the bellwether index’s had lost 58% of
its value by the time it ended its slide in early March. And now the S&P 500 is
likely destined to trade in an uninspiring sideways pattern for the balance of
the month, Seibel suggests.
Seibel believes that a growing sense of economic optimism shared
by many U.S. investors and the Obama Administration, alike, is completely
misplaced. He suggests that the rally during March and early April (with the Dow
Jones Industrial Average closing at 8,018 points on April 3rd after enjoying the
best four-week run since 1933) is merely a false dawn.
Soon enough investors will be seriously rattled yet again – this
time by a devastating after-shock to October’s global financial earthquake. One
that will see the S&P 500 Index nose-dive up to 40% before it hits rock bottom
at around the 450 points level. This bleak scenario contrasts starkly to the
S&P’s heady high of over 1,550 points in October of 2007.
A proponent of quantitative analysis, Seibel says this pending
nightmarish sell-off will cause plenty of already shell-shocked investors to
relinquish their remaining equity holdings. However, investors in gold bullion
and gold-backed Exchange Traded Funds (ETFs) will likely be spared the
widespread misery, Seibel believes.
“When there is a total loss in confidence in the stock market,
then gold will rally. Gold bullion is historically an inverse proxy to the stock
market. So, it’s only logical that this will happen,” he says.
“We should see a culmination of massive price weakness in stocks
within weeks, which will cause gold to reverse its current trend to establish
new highs beyond $1,000 early in the third quarter of this year – maybe even
testing the $1,200 mark,” he adds.
Interestingly, gold equities will not be immune to the market
meltdown because investors will engage in “panic selling,” to preserve whatever
capital they have left, he predicts.
Meanwhile, the catalyst to the stock market’s final capitulation
during the coming months will be a combination of the collapse of more landmark
U.S. companies, a renewed banking crisis, and other forms of “major economic
upheaval,” Seibel explains.
However, it is always darkest before dawn. And Seibel reasons
that a gradual rebound in equities will finally assert itself during the last
quarter of 2009 in anticipation of a spring economic revitalization. One that is
already being germinated by massive government-backed infusions of money into
the U.S. economy.
“History shows that economic recoveries typically get underway
about six to nine months after the markets hit their ultimate lows. So a spring
economic recovery appears very probable,” he says.
“And gold stocks will lead the way during the market recovery as
they’re already ridiculously cheap and will get cheaper. But as gold prices
begin to push higher, then gold producing companies will become attractive
because they will offer investors leveraged exposure to these rising prices,” he