Cash is King but Gold will Reign – Lessons from the 2008 Lehman’s crisis

As we see the worst stock market declines in decades and the VIX back to 2008 levels, 3 points stand out

1. All major asset prices have fallen, even the safest.

2. Not enough has been done to arrest the panic. Expect more on all policy fronts – On the monetary side, perhaps major central banks will buy equities.

3. We see similarities to 2008 – When Lehman went under, Gold initially FELL to a low on 24 Oct. around $682 – the same day the VIX peaked.

This may sound counter intuitive but as the panic hit, markets scrambled for cash, as they are again today. When that panic subsides, which it inevitably will again, the need for cash reduces and assets are allocated within the context of the new policy landscape, which undoubtedly is/will be zero interest rates and huge CB balance sheet expansion.

After 24 Oct. 2008 when Gold was $682, it finished the year at $882 (30% higher). The uptrend continued all the way to $1,900 into 2011 (>170% higher).

It may be difficult to imagine things getting better but nothing is permanent. As policies change, panic is arrested, and the dust settles, cash will be abundant – it is King today but Gold will once again Reign.