The way I see it gold goes up for 3 reasons. 1) Either people think the dollar is going to be worth less (inflation) or 2) they think the world is going to end (fear) or 3) simple supply/demand.
Both gold and the stock market can go up under 2 of the 3 items.
Gold - market pundits are arguing that investors should own gold in their portfolios. They suggest 5% of the total portfolio. Right now that number is 1.5%. So there is a lot of room to grow. Gold supply also continues to dwindle. Finding gold to mine is becoming more difficult. Inflation is going to happen. Demand for food and energy only continues to increase as emerging markets grow and we can't keep up with the demand yet. That is why you hear about these agriculture stocks all the time.
Market - Great multinational companies with exposure to the rest of the world are at very low PE ratios and most have very nice 3% or more dividends which is 3x what you get in a money market. Not to mention the record amounts of cash these companies have on their balance sheets. They are a very undervalued asset class in my opinion. Apple has $70 billion dollars in cash. That is more than the GDP of 150 countries and twice the size of Goldman Sachs.
Things that could make the market go down:
Europe issues - specifically the PIIGS - Portugal, Ireland, Italy, Greece and Spain. Worst case scenario here (in my book) is that the European Union just removes them from the union and are off on their own. Not sure what this does for us though.
China - they need to pick their growth back up. They are trying to cool down their economy so they don't have a housing and food bubble over there.
Washington - no confidence that they can do what is necessary to get our fiscal house in order and with the election coming up and republicans trying to make the Obama administration look bad, the uncertainty is preventing businesses from spending money short term. Other bills like Dodd/Frank and Obamacare are causing even more uncertainty for the long term and preventing business from hiring because they don't know what employees will cost.
Japan - too slow to get back online and rebuild after the earthquake.
>$3.50 gas - apparently this the magic number. The lower the price of gas, the bigger the "tax break" for the consumer and they can spend more money on flat screens.
Housing - lots of jobs come from housing. Need a turnaround here, but no immediate catalysts.
Earnings - corporate earnings were great the last few quarters but due to expense cuts. These beats need to come from top line growth in future quarters.
My take - invest in high dividend multinational companies, have a portion of your portfolio in gold, keep some cash on the sideline and buy in small increments on the dips. Take some small risks for big growth in key areas that have been beaten up and/or are poised to grow.Let dividends provide income and a floor if things get bad. They will also provide growth if things get better as earnings and PE ratios should increase.
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