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3 "Golden" Things You Should Know About Gold
How safe is the mainstream wisdom about the precious "safe haven" -- gold?
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By Nico Isaac
Tue, 27 Dec 2011 15:30:00 ET |
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“Gold appears to have ended a 3 1/2 day countertrend bounce at today's $1642.11 intraday high. Our stance remains that prices should work lower, declining to the next target...” -- EWI's Short Term Update, December 21, 2011
According to the famous song -- on the fifth day of Christmas, "my true love gave to me five golden rings."
So, on the third day of Christmas (December 27, 2011), I'm giving you THREE things to know about the flaunted asset GOLD that completely go against mainstream financial wisdom.
First, in the Wall Street gospel, gold prices lose their "disaster" premium when the economy is strong. Well, three years ago, in the March 14, 2008
Elliott Wave Theorist, EWI president Bob Prechter went to task on the widely-believed notion that a rise in economic growth correlates to a fall in gold's value. There, he presented the following table of gold's performance during the 11 officially recognized expansions since 1945.
As you can see, instead of falling in price when the economy was good, gold's done the opposite: Its average total return during those 11 economic expansions was a net positive 51.95%.
That brings us to the
second alleged "GOLDEN" rule of gold prices: The notion that gold is a surefire "safe haven" during economic contraction. Here again, the March 14, 2008
Elliott Wave Theorist blasted this popular myth to smithereens via the following chart of gold's performance during the 11 officially recognized recessions since 1945.
Again, the supposed inverse relationship between gold and the economy did not check out.
Which brings us to the third and final thing you should know about gold: Namely, the precious metals' recent rout to a two-month low is not a riddle wrapped in a mystery, as this December 6 news item suggested:
"Gold has been a conundrum in the past couple of months. Despite the rising sense of alarm in Europe, regular selloffs in the bond market, and relentless headlines about the demise of the single currency, gold -- supposedly a safe-haven against such turmoil -- has been mundanely range bound."
See, while the mainstream experts were caught in the headlights of gold's December downtrend,
EWI's December 7 Short Term Update (the near-term sister correlate of our
Financial Forecast Service) presented a decidedly
bearish outlook for the gold and wrote:
"Gold should be at or near the end of a bounce which has unfolded over the past two days."