Something wicked this way comes! So, be afraid. Be very afraid. (Unless you’re a gold bug). 

The recent rally in American and Canadian equity markets is soon to give way to a gut-wrenching collapse that will push equities to shocking new lows, with gold prices reacting by rallying to new highs.  

After having correctly anticipated the timing and extent of the March 9th to April 3rd market rally, this is the latest dire warning from Heiko Seibel, a leading German stock market strategist.   

The Director of Research for Munich-based CM-Equity AG now believes that the U.S. benchmark S&P 500 Index will dramatically drop to an ultimate low of around 450 points in late June or in July. The odds favour him being proven right – that is if his talent for correctly anticipating market moves continues.   

“Within a few weeks, we will see the stock lows of our lifetimes,” he nonchalantly declares. 

Indeed, he was right on the money when he told BNW Business Newswire on March 2nd that the S&P 500 Index was about to reverse a pronounced downward trend. He suggested at the time that it would rally to a high of not much more than 850 points during April before it begins an orderly retreat that soon turns into a panic-stricken rout.  

The S&P 500 closed at 856.56 on April 9th – the culmination of a very impressive five-week gain of 26% over its March 09th low. However, this rebound cannot gloss over the fact that the bellwether index’s had lost 58% of its value by the time it ended its slide in early March. And now the S&P 500 is likely destined to trade in an uninspiring sideways pattern for the balance of the month, Seibel suggests.

Seibel believes that a growing sense of economic optimism shared by many U.S. investors and the Obama Administration, alike, is completely misplaced. He suggests that the rally during March and early April (with the Dow Jones Industrial Average closing at 8,018 points on April 3rd after enjoying the best four-week run since 1933) is merely a false dawn.   

Soon enough investors will be seriously rattled yet again – this time by a devastating after-shock to October’s global financial earthquake. One that will see the S&P 500 Index nose-dive up to 40% before it hits rock bottom at around the 450 points level. This bleak scenario contrasts starkly to the S&P’s heady high of over 1,550 points in October of 2007.

A proponent of quantitative analysis, Seibel says this pending nightmarish sell-off will cause plenty of already shell-shocked investors to relinquish their remaining equity holdings. However, investors in gold bullion and gold-backed Exchange Traded Funds (ETFs) will likely be spared the widespread misery, Seibel believes.  

“When there is a total loss in confidence in the stock market, then gold will rally. Gold bullion is historically an inverse proxy to the stock market. So, it’s only logical that this will happen,” he says. 

“We should see a culmination of massive price weakness in stocks within weeks, which will cause gold to reverse its current trend to establish new highs beyond $1,000 early in the third quarter of this year – maybe even testing the $1,200 mark,” he adds. 

Interestingly, gold equities will not be immune to the market meltdown because investors will engage in “panic selling,” to preserve whatever capital they have left, he predicts. 

Meanwhile, the catalyst to the stock market’s final capitulation during the coming months will be a combination of the collapse of more landmark U.S. companies, a renewed banking crisis, and other forms of “major economic upheaval,” Seibel explains.    

However, it is always darkest before dawn. And Seibel reasons that a gradual rebound in equities will finally assert itself during the last quarter of 2009 in anticipation of a spring economic revitalization. One that is already being germinated by massive government-backed infusions of money into the U.S. economy. 

“History shows that economic recoveries typically get underway about six to nine months after the markets hit their ultimate lows. So a spring economic recovery appears very probable,” he says. 

“And gold stocks will lead the way during the market recovery as they’re already ridiculously cheap and will get cheaper. But as gold prices begin to push higher, then gold producing companies will become attractive because they will offer investors leveraged exposure to these rising prices,” he adds.

Published courtesy of B NW Business Newswire – http://www.bnwnewswire.com