Extreme volatility in the equity markets has investors wondering what to expect. Even the hardiest of stock market bulls are finally asking some serious questions about whether the top is in.

Stocks have long been priced for perfection and suddenly conditions are looking far from perfect. The coronavirus may be the pin which pricks the latest Fed-blown bubble.

Precious metals investors have been preparing against a rainy day. They may be less surprised by the turmoil in markets over the past couple of weeks. But there are still big questions about how metals prices might behave, especially if the current turmoil in markets should evolve into a full-blown financial crisis.

Here are two metals-market scenarios worth considering:

Scenario #1 - The 2008 Financial Crisis Revisited

During the immediate aftermath of the event, everything gets sold - a repeat of what happened in 2008. Investors buy bullion, even as traders dump leveraged futures in a rush to the sidelines on Wall Street.

Greg Weldon of Weldon Financial said metals investors could easily see a replay of 2008 in a recent Money Metals Weekly Market Wrap podcast. He noted the record number of active contracts, or open interest, in gold. The weak handed speculators who have chased the gold price higher will be quick to dump positions as prices move against them.

It won’t matter if more conservative investors are pouring into the physical markets for gold and silver. The futures markets are almost entirely untethered from physical supply and demand. Price discovery there is driven more by leverage, volatility, algorithmic trading, and bullion bank fraud.

Thus far the Treasury market action is reminiscent of 2008. Investors are buying bonds hand over fist and yields have fallen to new all-time lows.

As long as confidence remains in the U.S. dollar and U.S. Treasury debt, investors will look for safe haven in those markets. They are currently the widest and deepest markets on Earth and there aren’t too many other places for big money to go.

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