Monday, 12 December 2011

Risk off as EU summit talks dissapoint

The risk markets sold off today as a reaction to the news that UK rejected the European fiscal and budgetary constraints, followed by Intel's 1 billion revenue slash. Ratings agencies Moody's, Standard and Poor's and Fitch were again late at the party in expressing their worries about the long term sustainability of the rescue plan. Fitch declared that last week's summit did little to address the regions sovereign debt crisis and predicted a "significant economic downturn" across the region. Standard and Poor's added that European officials might need another financial shock to get it moving. Gold sold off today as well, in what is a more and more obvious correlation with equity markets. The precious metal is losing its safe haven status.

S&P 500

The US stock index slumped 1.79% down to 1235.7 today after a coordinated risk off trade in all asset classes. It seems interesting to note that Friday's rally didn't succeed in breaking the 1260- 1267 resistance area, which would have been for me a very bullish indicator. A Santa Claus rally looks less and less possible to me and I am keeping my S&P short at 1230.

Is Gold still a safe haven ?

Yes it is, depending on what you are trying to shield yourself against. If it is inflation-protection you are seeking, then gold is the answer. But one thing gold can't protect against is political and economic turmoil. Gold is more and more positively correlated with the US equity markets (albeit at a higher volatility), and today it sold more than $40 down $1666. It is dangerously close to the 200d EMA and I am looking for a close beneath that line to close most of my positions.

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