Gold led stocks in 2008/2009
Yesterday I mentioned 'don't buy gold until the Vix subsides' and that made me think about something else around gold's behaviour in the last major financial crisis. One interesting aspect of gold's behaviour in 2008/2009 is that it lead the US stock recovery in 2008/09. Take a look at the chart below:
The candlestick chart is Gold and the orange line is the S&P500. Gold acted as a leading indicator for the stock market recovery. So when we see the VIX falling, USD falling, and gold higher then might be the time to re-enter stocks to the longside. We are not there yet, but put this on your radar. However, don't forget that a medical solution can turn this around quickly.
Remember this is a medical problem, so watch for a medical solution
With all the extra talk on monetary policy and fiscal stimulus it can be easy to forget that what the market most needs is a medical solution. If we get news of either an existing treatment or a new treatment that is effective for COVID19 then we can expect a strong reversal. Make sure to keep an ear out for it as it could result in some very violent reversals if we get a credible treatment.
