… there is a scenario which few other people are taking about. As part of our often-mentioned forecast for a ranging, reversion to the mean recovery rally first hypothesized in late October, there is a possibility that stock markets will do surprisingly well in the next few weeks. Strong rallies would eventually leave markets susceptible to partial pullbacks, including some right-hand base formation extension.
How could strong rallies possibly occur when everyone is talking about depression? The answers can be found in sentiment and liquidity. Today, most people are either incredibly bearish or despondent, but extreme forecasts are seldom accurate, as I have mentioned before. However, there is plenty of liquidity in many portfolios and governments have significantly increased money supply in recent months. A rising stock market would force a reappraisal by bears, leading to a reversal of short positions, while long-only investors put more of their cash back into the stock market.
This scenario has been repeteadly suggested by the great Marc Faber, who at the same time has correctly been favoring gold stocks since November.
Such "scary" an outcome would not favor gold short term, but I think gold mining stocks could still fare well given they are equities and the still very high reading on the GOLD/XAU ratio at 7. What does anybody else think?
