Risk Appetite Grows, but Does This Rally Have Legs?

Source: Seeking Alpha, Gold Price Today  (2/2/10)

". . .you cannot discount the probability that what we're seeing is still a bear market rally"


The FTSE 100 was up 1.14% yesterday, the DAX, CAC 40, Dow Jones, S&P 500. . .all were up yesterday as investors took the increased U.S. manufacturing data as a sign that the U.S. recovery was back on track.

But as you've heard us say before, we at Gold Price Today don't believe this bull market has legs. In fact, at the moment, you cannot discount the probability that what we're seeing is still a bear market rally, just like the 'suckers rally' that fooled investors back in the 1930s. But it's a different ball game today; nothing like this amount of fiscal stimulus has ever been carried out before in the U.S. and UK as a reaction to an economic recession. Because we've not seen this before, we're cautious.

We're also cautious about figures pushed in front of us. . .Here in England we had similar optimistic news last week. Data released last Tuesday showed that the UK GDP grew by 0.1%, which means we're no longer in a recession. This was followed by data revealing the UK manufacturing activity grew at its fastest pace in 15 years in January. Both of these should have been reflected in strength for the pound, but, with an announcement looming this Thursday over the Bank of England's decision on whether to increase quantitative easing, investors are understandably cautious.

As John Hawksworth of Pricewaterhouse-Coopers points out, figures can be deceiving: "Given the normal margin of error for preliminary GDP estimates, the difference between 0.1% and zero growth is statistically insignificant."

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