CFD Market Strategist, GFT
After a strong start to the New Year, equities finished January on a very weak note. With China beginning to tighten policy, investors have become twitchy. The prospect of a drop in Chinese demand and a world with less
liquidity has rattled financial markets. There was hope that the US earnings season would calm investors’ nerves.
More than 40 per cent of S&P 500 companies have reported so far and 78 per cent have beaten analysts’ estimates. There is even evidence of revenues-beating expectations, suggesting a more solid basis for growth, rather than firms reporting increased profits on the back of cost-cutting.

Unfortunately this hasn’t been good enough for investors. They worry that expectations are still too low, that markets have got ahead of themselves, and equities are overpriced.

Politically, President Obama’s detail-light Volcker Plan for reform, Ben Bernanke’s struggle to get reappointed for another four years as Fed chairman, and Treasury Secretary Tim Geithner’s grilling over his role in the AIG bailout have all left a bad taste in the mouths of many investors. Add in the Greek budget deficit, uncertainty over a bail-out and the risk of contagion, which would see the yields on sovereign debt in other countries soar, and it’s easy to see why we’re experiencing a wobble in 2010.

Precious metals have had a similarly rough ride. Having rallied strongly as the dollar fell, gold and silver hit a brick wall in early December. Both recovered their poise in the first two weeks of 2010 but have since sold off sharply along with equities. It seems they are being traded as risk assets and a play on recovery, rather than as ultimate stores of value. The question for investors now is whether this is the correct way to view them? With all fiat currencies at risk of debasement as our policymakers engage in competitive devaluation, maybe it is time that gold and silver finally decoupled from other risk assets.