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Great White Lies About Gold
Two common myths could be putting you in harm's way

By Nico Isaac
Mon, 05 Aug 2013 19:00:00 ET
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On Sunday, August 4, the Discovery Channel launched its enduring crowd-pleaser, Shark Week -- a seven-day-long series of docudramas that takes a giant bite out of the biggest shark myths, especially those surrounding the oft-villainized Great White.  

On Monday, August 5, we at EWI take off in a similar direction. We are dispelling the two most common mainstream financial myths surrounding the Great Yellow market, gold.
 
First, we sink our teeth into the notion that gold prices lose their disaster premium when the economy is strong. Here to flesh out this idea in real time is this August 5 news headline: "Gold Bulls Cut Wagers on Signs US Growth Quickens." (Bloomberg)
 
The report cites a raft of positive Commerce Department data as the reason for hedge funds lowering their "bullish gold bets for the first time in five weeks," such as:
  • US manufacturing expanded in July at the fastest pace in two year
  • US unemployment rate dropped to the lowest level since December 2008
  • US economy grew at a faster pace than previously forecast in the second quarter of 2013
The financial press and pundits can go on to cite as many signs of economic recovery as they have access to. It won't matter because this idea is dead in the water.
 
Three years ago in the March 14, 2008, edition of The Elliott Wave Theorist, EWI president Robert Prechter took 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, gold's average total return during those periods was a net positive 51.95%.
 
That brings us to the second Great White lie about gold prices: The notion that gold is a surefire "safe haven" during economic contraction. Here again, the March 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 is not as comforting as the myth would have you believe. After transaction costs, gold’s total return was 4.8%.
 
Now that we've exposed the flaw in these two age-old myths surrounding gold, what about a more recent theory? Here's a hint: It starts with a Q and ends with an E. Quantitative easing by the US Federal Reserve is bullish for gold. (And silver, to be exact.)
 
Well, here again Robert Prechter swims circles around this idea, making his move in the July-August 2013 Elliott Wave Theorist. There, he presents a JAWS-dropping chart of gold and silver prices since 2010 with bold arrows marking the inception of QE2 through QE4. 
 
Da-na. Da-na. Don't get lured into the mainstream waters surrounding gold. Get safe and objective analysis of precious metals today via a risk-free subscription to EWI's Financial Forecast Service.
 
 
 

 
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