The Stock Market is Falling and the Decoupling of Gold and Silver

           In the last three weeks, the DJIA has dropped over 2100 points.  That is a 16.4% drop in three weeks.  After QE2 at the end of June, the market has been extremely unstable and with both the sovereign debt problems in Europe and the US debt being downgraded to AA+ the stock market has begun to dive.

           It came as little surprise that the stock market began to fall, but what did come as a shock was what we saw in the precious metals market.  In 2008 when the stock market began its fall, precious metals followed within a few days.  Investors, financial institutions, and many other organizations began to sell precious metals as well.  Consequently we saw precious metals fall in price significantly.  However, with this last major fall in the stock market, both gold and silver either soared in price or staid stable.  What we may be witnessing is a decoupling of precious metals from the generic movement of the stock market.  While it is still too early to tell, there is a good chance that this could mean that gold and silver prices will not be nearly as volatile during another major stock market crash like 2008.

           One question that is being asked about gold is “How much further it will go before facing another major resistance point?” Back in 2007 and 2008, gold struggled to break above the $850 mark because it was the highest price gold had ever reached.  This is called the 100% Fibonacci resistance level.  After breaking through, gold hit a number of smaller barriers, which it overcame in a much shorter period of time.  The next major Fibonacci expansion level comes in at the 261% mark or approximately $1900.  That will be another major point to watch for a slight pullback provided no major economic news is forthcoming during that period of time.

Josh Renfro

President & Founder

Lone Star Bullion LLC