Which Way Share Prices?
We don't often venture opinions on future stock market prices, although we are often asked, and many of our customers discuss share prices with us. Sometimes we have a view...
When the FTSE first hit a low of 4,000 about September 2002, the comments in the financial media were suggesting that this was more or less as low as the market would go, and that the next stop would be 5,000. We doubted the wisdom of this view, and thought that 3,000 was still possible and quite probable. We still think so. We regret not having posted our opinion here at the time, had we done so, we would have stated that 3,000 was the next stop, but that the market would be closer to 3,000 before it got closer to 5,000 again. In other words, 3,500 would be reached before 4,500. We would have been proved right as the 3,500 mark was breached in January 2003. O.K., so it's easy to forecast retrospectively, and be right, but we did express this opinion to a number of people at the time. We are still not convinced that the UK stock market has bottomed out, and we still believe that 3,000 is quite likely.
Pension fund shortfalls appear set to have a long-lasting effect on the UK stock market. Firstly low share prices have forced pension funds to reduce shareholdings pushing priced lower, but more importantly, many large British companies face large pension fund deficits. Rectifying these deficits is likely to drain their income for a number of years into the future. It may push some otherwise profitable companies into liquidation, and certainly will continue to depress their market value.
Quick Bounce or Long Term Haul?
All major price movements get overdone, and the stock market is no exception. Share prices will undoubtedly go too low, and will face a correction upwards. Where and when the bottom will be reached, we do not know. It is possible that when it does come, the correction and initial recovery will be quite substantial, but we also believe that full recovery will take a good number of years.
Share prices are not the only, or the most important influence on gold demand. We believe that potential weakness of major currencies makes a good reason to seek the shelter of gold. Watch this space!
5th March 2003
Update 4th June 2001
The World Gold Council compile regular and abundant statistics on the gold market.
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