We all know that what goes up must come down. In the last several weeks, we’ve noted that the stock market had been stretched and just like a rubber band, when it gets stretched (creating a higher level of risk) it wants to return to a more normal position. Additionally, the Federal Reserve System’s policy of Quantitative Easing has kept interest rates artificially low – creating higher risk in the bond market.
Last week, we witnessed a pullback in the stock market and rising interest rates in the bond market and falling gold prices – after Ben Bernanke announced a probable slowdown in the Fed’s Quantitative Easing towards the end of the year. The simple announcement of the probability of that happening was enough to spook the stock and bond markets. Remember the commercial from several years ago that said, “When EF Hutton speaks… people listen”? Well apparently in this day and age, when Ben Bernanke speaks, people not only listen – they act!
To make things worse, those who have invested in gold for a hedge against inflation didn’t fare well last week either, as the price of gold declined approximately 6.7% last week, and is down 33% from its high in October, 2011.
Please click on the video or link below to view.
Charts included in this posting and video were created by Dorsey Wright and Associates. The postings on this site are my own and do not necessarily represent Dorsey, Wright & Associates positions, strategies or opinions.