Currently we have a massive wave of risk aversion, essentially filtering into an overdue stock correction which I believe will last into June 2010
The market is looking at the risk aversion from the perspective of growth faltering ie or a double dip global recession - that is the primary fear at this point in time lead by sovereign risk/defaults from EU countries such as the PIIGS (Portugal, Ireland, Italy, Greece and Spain). So USD and T-Bill buying has been overpowering the normally safe haven Gold. As discussed in Will gold correct soon? the support for gold is at 990. It is possible for Gold to fall back into the support range, but once the market realizes that any major sovereign default story comes to the forte, Gold should skyrocket. This is because the global ecomomy is in a volatile recovery mode, in the sense that government stimulus have actually created a support for the economy at the expense of huge deficits; a shocking realization for the market will be when a developed nation defaults on it's debt or has to be bailed out. Since we had a synchronized goverment spending (to stabilize the economy), we should have a overwhelming market worry that the defaults and sovereign defaults could be a major global concern in the near term. This can be seen right now with credit defaults spreads widening; the market is now factoring in the costs of major defaults.
So in my opinion we have (starting from now) a 3 to 5 year decay of public accounts that will lead into a collapse.
Please also refer to the post Greece downgrade - may induce nasty market correction.
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