Societe Generale is a highly respected European bank so their statements, especially those issued by veteran strategists, carry significant weight. Even if this prediction becomes only partially true, gold's big test to disconnect from the equity rout should be right around the corner. If the Obama Bounce does not materialize next week and FED/Treasury credibility decreases even further, look out below.

Cheers - VHF

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Depression ahead, prepare for stock rout: SocGen

Thu Jan 15, 2009 7:32am EST

LONDON (Reuters) - Societe Generale said on Thursday that the United States' economy looks likely to enter a depression and China's could implode.

In a highly bearish note, veteran cross asset strategist Albert Edwards said investors should now cut equity exposure after a turn-of-the-year rally and prepare for a rout.

He predicted that the S&P 500 index of U.S. stocks could be set for a fall of around 40 percent from recent levels.

Edwards also raised the danger of a global trade war with China.

"While economic data in developed economies increasingly reflects depression rather than a deep recession, the real surprise in 2009 may lie elsewhere," Edwards wrote.

"It is becoming clear that the Chinese economy is imploding and this raises the possibility of regime change. To prevent this, the authorities would likely devalue the yuan. A subsequent trade war could see a re-run of the Great Depression."

Edwards has long been one of the most bearish analysts in London, first with Dresdner Kleinwort and then with SocGen.

But he called in October for clients to increase their exposure to equities, which he said were due a rebound.

"We believe that the market is (now) set to quickly slide sharply toward our 500 target for the S&P," he said.

The S&P 500 .SPX stock index is currently at 842, up about 14 percent since hitting a low in November.