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August 12, 2011

Will uncertainty in stocks and bonds lead to metals as an alternative asset class?


''2008 Crash Continues to Haunt Investors

The frightening memories of markets crashing around the world and chaotic government rescues three years ago loom very large in investors' minds today, influencing their decisions to buy, sell or hold on for dear life.

That's partially because of the eerie similarities between today's market turmoil with the last crisis: 500-point plunges on the Dow, stomach-turning turbulence and a great fear of the unknown. It's also due to the very close time proximity between the two crises and the incredible pain inflicted by the last one.

''Everybody I talk to, that's all they talk about. They say, 'Oh my God, it's 2007-2008 all over again,''' said Walter Zimmerman, senior vice president at United-ICAP. ''That memory is still very, very fresh and people are very, very concerned.''

It doesn't necessarily matter that there appears to be very real differences between the 2008 meltdown and this one, including the strength of corporate America's balance sheet and focus on non-U.S. financial institutions.

''We're talking apples and oranges,'' said Peter Kenny, managing director at Knight Capital. ''We're talking global now, not just U.S. financial firms. But it feels the same way.''

Understandably, investors appear to still be thinking about the enormous pain inflicted by the last crisis, which marked the worst market performance in more than 100 years. From its peak in October 2007 to its depth in 2009, the Dow Jones Industrial Average plummeted an incredible 7,500 points -- translating to a remarkable 53% plunge.

Lowered Pain Threshold

The similarities and the pain from the last crisis have led some investors to sell first and ask questions later.

''With that so fresh in the mindset of the market, people are now willing to pull the trigger much more quickly,'' said Kenny. ''There is a risk aversion that has been learned.''

To be sure, there are very real reasons why investors, hedge funds and traders have sold their positions in recent weeks.

The financial markets are suffering from another crisis of confidence, triggered by Europe's response to its sovereign debt debacle, Washington's debt-ceiling debate and the Federal Reserve's efforts to prevent a double-dip recession.

Those fears have sent the blue chips plummeting 2,000 points, or nearly 16%, since July 21. While that's a far cry from 2008, it is still an alarming pullback in just 14 trading days. Volatility has soared: this week the Dow saw its first three-day streak of 400-plus point moves since November 2008.''

*This information is solely an excerpt of a third-party publication and is incomplete. Please subscribe to the referenced publication for the full article. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

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