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David Callaway
May 13, 2010, 12:01 a.m. EDT · Recommend (2) · Post:
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Malignant market forces set sights on Europe
First Take "º
Whole Foods, recession edition
By David Callaway, MarketWatch
SAN FRANCISCO (MarketWatch) -- Europe's currency is struggling, China is in a bear market, and the U.S. spent more money last month than it took in -- even though it was the April month of taxes.
Against those frightening headlines, it's no wonder gold prices are setting new highs this week. Yet stocks are on the rise as well, with economic news continuing to get better in the U.S. and parts of Europe, and as corporate earnings soar -- as we saw from Cisco Systems Inc. /quotes/comstock/15*!csco/quotes/nls/csco (CSCO 25.66, -1.08, -4.04%) late Wednesday.
While the S&P 500 Index /quotes/comstock/21z!i1:in\x (SPX 1,167, -4.21, -0.36%) and gold prices have climbed in unison for much of the past several weeks, at some point one of them has to break. Though the S&P is still well off its record highs, it looks the weaker right now.
Gold hit a record on Wednesday, thanks to persistent concerns about the sovereign debt problems sweeping through Europe. Claudia Assis and Steve Gelsi of MarketWatch report on how the surge affected international markets and New York City's jewelry district.
A lot of gold's stunning climb in the past decade, from below $300 an ounce to a record of $1,243.10 an ounce on Wednesday on the Comex division of the New York Stock Exchange, has stemmed from the fact that the U.S. dollar has been weak. The dollar has climbed lately, but only because of the plunging euro.
Europe's crippling debt situation could easily spread to the U.S., which has similar debt problems in many states, including here in California. And in Asia, which went through a debt and currency crisis only a decade ago, China's spending is already being felt in a stock market that is down almost 20% this year.
The gains in stock prices this week -- rebounding from last week's big scare -- have helped bulls make the case that the economic growth we've seen in the past year will overwhelm the debt issues of places like Greece and Spain in the global markets. While I don't believe that, it is certainly possible. A growing U.S. economy typically lifts most global market tides, and is certainly hard to ignore.
But even against that backdrop, gold looks good in its traditional role as a hedge against inflation and gains in paper currencies, which would be an eventual market reaction to continued economic improvement and corporate earnings performance.
It's tough to see gold replicating the massive run it's already had, or even to really see it climbing to the $2,000 an ounce level many gold bugs think it can achieve. But it's a lot closer to $1,400 or $1,500 than to $300 given the current worldwide economic conditions.
The markets were jolted in the past few weeks in a way that will take some time for the scare to be over, likely the next two months. More scares from Europe or with unforeseen debt skirmishes elsewhere could spark gold certainly into the 1,300s, and maybe higher.
It's not a great bet for huge gains after the run it's had. But given the precariousness of just about every other investment out there right now -- including U.S. Treasury bonds -- it's probably more of a sure bet then say, oil or other energy futures.
At some point, the power of the U.S. economic recovery, and those in Europe and Asia, will begin to wash out the last of the bears and the pessimists who see another, more dangerous leg to the financial crisis developing. By then we will already be racing headlong toward the next crisis and recession.
In the meantime, gold bugs, investors in gold and mining stocks, and traders and holders of gold exchange-traded-notes and funds, are enjoying the best of both worlds. They've got the makings of a major debt crisis developing, and the possibility of a breakout in inflation across the largest economies.
Even for those fanatics who hoard their treasure under their beds or in their basements, untrusting of the banks and bankers, this should be a pretty safe feeling.
David Callaway is editor-in-chief of MarketWatch.
David Callaway is editor-in-chief of MarketWatch, responsible for the global news coverage of 100 journalists in 12 bureaus in the U.S., Europe and Asia. A financial journalist for more than 20 years, Callaway has worked for Bloomberg News, the Boston Herald, and assorted television and cable stations as a reporter, columnist and commentator.
After a rough stretch, it looks like Whole Foods Market is back.
34 min ago2:13 p.m. May 13, 2010 | Comments: 3
- YurRight | 11:42 p.m. May 12, 2010
"Great piece on massive cash piles at tech companies. Look for more Sybase-type deals to come this summer. http://bit.ly/c6yjEE" 11:31 a.m. EDT, May 13, 2010 from dcallaway
"In markets tug-of-war, gold holds the key: Europe's currency is struggling, China is in a bear market, and th... http://on.mktw.net/bBEWXj" 12:43 a.m. EDT, May 13, 2010 from dcallaway
"Same old Cisco, under promise and over deliver...and shares down as the market focuses on next quarter's under promise http://bit.ly/aGeEed" 5:11 p.m. EDT, May 12, 2010 from dcallaway
"Funny how Goldman derivatives probe cracked the market but Morgan Stanley just a blip...guess investors no longer surprised." 12:33 p.m. EDT, May 12, 2010 from dcallaway
"I covered Blair's Labour victory in '97....this one is much more of what they'd call a dog's breakfast...nervous times for investors" 5:50 p.m. EDT, May 11, 2010 from dcallaway
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