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Gold finished the week up 5.1 per cent at $913 while silver jumped 8.4 per cent to $12.90 as precious metals became a safe haven from the faltering six-week old bear market rally.

This left gold prices at their highest levels in three weeks but fell short of a third break of the $1,000 barrier. However, the precious metals clearly established their position as the place to be as the bear market rally breaks down.

Bull about the bear

Having shown a precocious 28 per cent gain in six weeks, the stock market rally is facing strong headwinds in the upcoming bankruptcy of two top US auto companies, a commercial property slump, a deteriorating international financial environment, and general over-optimism about recovery prospects in the banking sector.

In the past week the Wall Street pundits did their very best to keep the rally going despite some deeply unimpressive results from bellwether stocks like UPS (NYSE:UPS) and 3M (NYSE:MMM). Results that came in slightly less worse than analysts' own forecasts were greeted as returning prodigal sons.

This is of course nonsense, and spin of an obvious kind. Nobody really wants to be seen to be rocking the boat as the US establishment led by President Obama attempts to talk up the market.

The problem is that fundamentals always triumph over hot air. It is like trying to blame the media for the troubles of the world: if only they stopped reporting events then they would go away.

Reality counts

Sadly reality has a life of its own. The US banking sector has a long and painful recovery path to come but, most crucially, has not hit the bottom yet. Ask Meredith Whitney, the analyst who first downgraded Citi (NYSE:C) at the start of the crisis.

And what about the executives at Chrysler and General Motors (NYSE:GM) who are busy preparing to file for bankruptcy? This is a sign that things are still getting worse, not better.

Global trade is also firmly in a slump. Japanese exports in March slumped by 47 per cent instead of 49 per cent, and if that is an improvement worth shouting about, then this correspondent is from Mars!

Reality will bring investors back to the conclusion that with the money supply being inflated by an unprecedented amount, the only safe havens are precious metals, and that is what we started to see this past week.