During the last six months it has been difficult to read a financial magazine which has not advocated the demise of Bonds and Gilt prices whilst at the same time forecasting the resurrection of Gold funds and bullion prices. All logic would say that this synopsis is correct. Yet Bond and Gilt prices stay flat resisting correction whilst gold fund prices return to slumber after a brief non sustained sprint a few weeks ago. What's going on? To me it seems like a case of "Those whom the Gods wish to destroy they first make mad."
Bond and Gilt prices will probably resist collapse as long as interest rates remain minimal and the financial crisis in the Developed World shows no sign of resolution. But if you are holding Bonds be prepared to exit fast when the rot sets in. Yields are very low and have a long way to rise to become half sensible. It is no longer a case of logic but one of fear and uncertainty.
Today Gold fund and bullion prices are historically cheap when compared with previous periods of stress. The markets are likely to go into free fall when there is a general recognition and acceptance that Western governments are just shuffling the cards and do not have the ability or the guts to change the deck. Then just maybe gold prices will rise as they are used as a hedge against the market decline. When the FTSE fell 28% in 1973, 50% in 1974, 22% in 2002 and 30% in 2008 the corresponding rises in gold prices were 69%, 70%, 9% and 39% respectively. So if and when the market correction occurs you had better watch the numbers to see if history repeats itself and produces another buying opportunity.
For the moment maybe mostly cash is the best place to be with an eye out for any sudden movements in the markets. Better watch the Saltydog numbers.