On Monday, gold rallied to a 1-month high, finishing above $1,254. On the other side, stocks slid to their worst day in a long while, adding fuel to the speculation that the market is due for a correction. According to gold supporters and experts, a correction in the equities market could be a big boost to gold bullion.
Atlanta Federal Reserve Chief, Dennis Lockhart, recently announced his support for further cuts to the Federal stimulus plan (Quantitative Easing or QE). Even though he does back additional efforts to ease up on the easing, he admitted that the state of employment and inflation are not good. The Federal Reserve has stated that both are key measurements being used to determine when to further reduce the bond-buying program. These remarks resonated with stock market investors, however, and were a big reason for the dip.
The biggest scare of the day came from Goldman Sachs, which released a statement warning of an impending stock market correction. According to article released by CNBC, Goldman analysts have stated that, “A stock market correction is approaching the level of near certainty as Wall Street faces a major paradigm shift in how to achieve price gains.” Goldman’s strategists went on to say that the valuation of the S&P 500 is “lofty by almost any measure” and they attached a 67 percent probability to the chance that the market would fall by 10 percent or more.
The spreading fear of a correction has gold prices up 4 percent on the year and silver prices up 1.2%. Precious metals, especially gold, are typically a recommended hedge against inflation and stock market dips. As usual, a focus on portfolio diversification and asset allocation is crucial in order to stay afloat during volatile economic times.