With interest rates declining any company with solid returns and minimal debt will be looking cheap. Unfortunately they might look cheap but the fear is that they will be cheaper still in a few months time.
I have been commenting time and again over the last few months that markets have been overvalued for the coming storm and that investors should be sitting on their hands. I am afraid that the advice is still the same now.
Whilst I hope that the Government’s bolstering of the financial system will work its magic, I fear that the bear market is not going to loosen its grip just yet. Looking at the FTSE 100 we have had a series of very good bounces from sell offs since the turn of the year. No less than six 500 point or more moves higher from the various low points. Two of these were 900 and 1000 point rallies. We are now 2000+ points off the start of the year.
Readers should be very wary of the current situation and anyone spread betting should be prepared to close trades quickly when the momentum starts to move into unfavourable territory.
So what do the professional traders think? Simon Denham of Financial Spreads recently commented that “Trading will remain fragile for some considerable time but we can hope that the worst of the panic might now be over. My worry is that we have yet to have a real disaster in the UK, a major company going to the wall costing thousands of jobs. Recessions are generally not that nice and we are not out of the woods by a long way”.
Gold Spread Betting
So with interest rates falling and growth expected to be quite subdued, the pressure on inflation should start to abate. And, if (I realise it is a big ‘if’) the financial structure of the major banks can be secured the value of precious metals might come in for some serious shorting pressure. It is not difficult to imagine a lot of investors spread betting on gold to go down.
Assets from bonds to equities are now looking like (long term) value. Gold’s value is often based on the fear of everything going wrong. Precious metals are not a good investment in times of slow growth. If the markets stabilise we are likely to see some dramatic weakness in the price of gold. Only further chaos would justify renewed high gold prices.
Readers are reminded that we are still in very dangerous waters. If you must spread bet it is advisable to do so in much smaller size than you usually would.
Note - Spread Betting carries a high level of risk to your capital and you can lose more than your initial investment, it may not be suitable for all investors. Ensure you only speculate with money that you can afford to lose and that you fully understand the risks involved and seek independent financial advice where necessary.
'Spread Betting on Gold Falling', Feature by D. Jones, last update: 17-Oct-08
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