Today the financial markets were hit hard by the announcement that Moody’s Investors Service had downgraded its ratings of 15 major investment banks, including all of the world’s top 10 investment banks.

Household names like Bank of America, Citigroup, J.P. Morgan Chase, Goldman Sachs and Morgan Stanley were among the financial institutions downgraded because Moody’s sees them as vulnerable to downturns in global investment markets and the world economy.

It was no surprise the US stock markets took the news hard, falling over 2% on the day, but many investors are no doubt bewildered by gold’s reaction to the news, since the yellow metal fell as well.

Gold’s reaction was actually in keeping with its cyclical role in such crises. Often at the outset of a financial crisis, the price of gold will fall as investors use their gold holdings as a certain source of liquidity to cover losses in other parts of their portfolio. This is exactly what happened in 2008 when the US financial system nearly melted down. Gold fell at first, but eventually rebounded sharply and finished the year in positive territory, while the Dow was down 33% for the year.

We expect a similar reaction this time and recommend that our clients view current levels as exceptional buying opportunities for physical gold investments of all types.


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