So far this year, gold has outperformed stocks – rising 8.5% while the Dow has dropped 7.6%. The question becomes: Are precious metals the safe haven for capital? Bob Prechter addresses this very question in his January Elliott Wave Theorist.
UPDATE: Bob's new February issue is online now. To get both the January and February issues for the price of one, click here.
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Excerpted from The Elliott Wave Theorist, January 2008, by Robert Prechter
Precious Metals
In nominal terms, real estate topped at all-time highs in 2005, stocks topped at all-time highs in 2007, and this month the inflation hedges—gold, silver and oil—have made new highs for the decade. Gold and silver have been playing a bit of catch-up to stocks, bonds, copper, oil, wheat and every other commodity or investment that has soared in recent years.
It appears to many investors that the metals are adjusting belatedly to the massive expansion of credit, with far more rise to go. After all, stocks rose 18 times in value since 1982, oil rose nearly 10 times since 1998, and gold has not even quadrupled from its 1999 low. Moreover, from their 1980 peaks, gold is up only 6 percent and silver is still down 68 percent, and that’s in terms of the lousy dollar!
No wonder those who have given up on real estate and who are starting to sell a few stocks are seeking refuge in the precious metals. But once again investors are leaping from yet another expired mania to an expiring one. The hype is everywhere—on TV and in newspapers and magazines. That’s why I am choosing this time to comment on them.
Are these inflation-hedge investments going to be the saviors of capital as so many are saying? If deflation is coming, the answer is no. If credit has begun to implode, these markets are likely to go down along with everything else. On the plus side, they should fall much less than everything else because they have not become as overvalued as everything else. So on a relative basis, gold and silver will be better performers. But I doubt that the metals will satisfy investors’ dreams, at least not until the great deflation is over.
Editor's Note: You can see the two charts labeled with wave patterns along with Bob's succinct analysis of where gold and silver are headed next by getting a copy of the January Theorist. Follow the quick steps below to subscribe to a monthly issue or click here to purchase a single copy.