Unless you're about 80 years old, the United States economy is undergoing the worst downturn in living memory. The world's most recognized stock index -- the Dow Jones Industrial Average-- is down 40% from its October 2007 all-time high.
If ever there was a time for the “Safe-Haven” lure of precious metals to surface -- now, yesterday, even seven months ago when the Bear Stearns’ bailout launched the historic reshaping of Wall Street -- would have been it. Yet -- gold prices have officially entered bear market territory right alongside equities.
The cat's out of the bag: "Gold's recent slump bewilders investors," begins an October 23 DJ MarketWatch. "Gold prices tend to rise when the economy falls into troubles; but its recent slumps have defied conventional wisdom."
And before you say, "Greenback gains are reducing the appeal of precious metals" -- note this: The U.S. dollar didn't break out of its sideways crawl until late August. Yet gold prices peaked on March 17.
Truth be told, the downward synchronicity between stocks and gold is NOT an unforeseen glitch. It's actually part of the "All The Same Market" scenario laid out by Elliott Wave International's team of analysts as early as 2002. Then, in a May 17, 2004, Barron's interview, EWI president Bob Prechter described the exact details of the coordinated collapse in all assets to come. Below are a few excerpts from that article:
"There is an important difference between now and periods of accelerating inflation [such as the 1970s]. In those periods, the trends in hard assets and financial assets went in opposite ways; precious metals and commodities soared, while stocks languished. In the current environment, stocks and junk bonds have recovered right along with gold, silver, and commodities."
"Liquidity is everything right now and it is driving the prices of ALL investment classes. These markets have been going up together, and we think that when liquidity contracts, they will go down together. This outcome happens only at rare times in history, when a society-wide credit expansion reaches its zenith and social psychology changes from expansive to defensive. The resolution of all of this is likely to be a credit contraction followed by a drop in most asset classes."
Flash ahead to today. The across-the-board breakdown of every asset class has arrived.
Amidst the confusion of failed cause-and-effect analysis, it’s easy to lose track of actual events; namely this: Since setting a record high on March 17, gold prices have lost more than 30% in value. In the days leading up to the reversal, Elliott Wave International's President Bob Prechter went against the bullish gold bandwagon and presented a special March 14 2008 Elliott Wave Theorist. In Bob’s words:
“What’s Next For Gold? If the relationship shown here holds true, and if gold behaves as it did in 1980, it should peak concurrently with the economy.”
That same day, the March 14, 2008, Short Term Update presented a powerful close-up of Gold with the headline: “Waiting For A Reversal.” STU wrote: “Gold hit the psychological motherlode yesterday when it pushed to $1,000. We may have to wait until closer to the end of the week before prices make the turn lower, but any decline beneath $960 should be a clear warning that the declining phase is starting.”
What followed -- a seven-month long, 30%-plus selloff to a recent thirteen-month low -- speaks for itself.
Make no mistake: The tide unfolding in the U.S. economy will lift AND sink all boats together. Get the full story today.