The Lies You Are Told About Gold

Sunday, May 8, 2016

price of gold lies

For the last 5 years, most were caught on the wrong side of the gold market.  As gold was topping in 2011, most market participants and analysts alike were caught looking the wrong way.  Most were uber-bullish when the market was topping, and remained so almost the entire way down. 

Why did so many get it wrong in 2011?  Why did most get it wrong for the last 4 years? Because most market participants and analysts do not understand gold.  Feel free to read that again: most market participants and analysts do not understand gold.  And, worse yet, most have bought into, or sell you on, the lies and fallacies about gold and are not burdened by the true facts presented through our recent history.

You Are Being Sold Lies

Just recently, I read the following in an article on Gold-Eagle.com:

“Gold is the final safe haven left to securely invest in which has stood the test of time over thousands of years. It has maintained its’ value throughout at least the last five thousand years. The sudden and most recent ‘break out’ in gold is proof that its’ safe-haven status is still intact. The price of gold is rising more on the expectation of the next financial crisis.  Imagine how high the price of gold could go when the real crisis impacts world economies.” See the following link for complete article:  http://www.gold-eagle.com/article/price-gold-going-ballistic.

I want you to consider a couple of questions about this paragraph before we prove the faulty nature of such thinking.  First, is gold really a safe haven from a financial crisis?  If you are willing to remove your gold-bug blinders, you will soon see the answer is “no.” Second, how can anyone believe that the recent break out in gold is proof of its safe haven status when the equity markets have rallied alongside it?  It’s a safe haven from what - a market rally?  Do equity markets also rise on the “expectation of the next financial crisis?” Lastly, the final sentence of the above-quoted paragraph is nothing more than an emotionally charged play upon your fears, as well as your greed.

At the end of the day, this is nothing more than the same type of gold-bug thinking that got most of you in trouble in 2011.  Have you not learned your lesson yet?  If you believe in such erroneous thinking, then you should never see gold rally alongside the equity markets and it should absolutely never fall in price when we experience a financial crisis. But, is that true about gold?

No.  These are some of the fallacies presented in order to either sell you analysis or sell you gold  It preys upon your fears and is not based in fact.  Do you want to make an investment decision based upon your fears or based upon the truth?

These fear mongers will not point out to you that, since early February, the metals and the miners have been rallying with the equity markets.  They will not mention this to you since it presents a fact in opposition to their underlying erroneous thesis.  Moreover, this is not the first time that we have seen gold rally along with the equity markets, nor will it be the last.  I believe this seeming correlation will eventually be recognized within our markets, and it can last for several years as we have seen in past history.  But, that is simply not what you are told will happen by most of those telling you to buy gold.  Based upon their faulty thinking, the market is about to crash, and gold is about to skyrocket.  Yet, history disagrees with their premise.

What Does History Teach Us?

Allow me to show you why only expecting an inverse correlation between equities and metals is just outright wrong.  Of course, we can always point to the fact that metals and equity markets have been rallying together, with over double-digit returns, for the last several months.  But, let’s put that aside for now.

The main premise of these fear mongers is that gold will certainly protect you during a major market crash.  So, let's take a look at the 2007-2009 timeframe, which evidenced the most significant period of market volatility since the Great Depression, to see if the metals acted as a safe haven during the period of time a safe haven was most needed in modern times.

We all know that the S&P 500 topped in October of 2007 and began an estimated 300-point decline into March of 2008. Then we saw a corrective bounce in the equities for a couple of months before it continued to head down. During that same period of time, even while the markets were heading lower, the metals continued to rally strongly. Here we have "evidence" of precious metals rising during a period of market volatility. So, maybe they are a safe haven. 

But, when we then look towards the May 2008-March 2009 decline in the equity market, not only did the metals not rally, but they experienced significant declines within that time frame. In fact, gold lost a little more than 30% during the massive equity market sell off. Yes, you heard me right.  Gold and the equity markets both experienced significant declines together. 

So, here we are presented with clear evidence that gold did not act like a supposed safe haven. Moreover, it failed as a safe haven during the worst financial crisis since the Great Depression, which was the most crucial time period that a safe haven was most needed.

When one is presented with these facts, can one truly have confidence in gold’s safe haven status, especially when it failed during the most critical time period since the Great Depression?  Should one rely upon an analyst or salesman who is selling you on the merits of gold’s safe haven status in light of the true, hard lessons of recent history?  As George Santayana said, “Those that cannot remember the past are condemned to repeat it.”

If you need further evidence, consider this additional fact.  Back in 2008, the folks at Elliott Wave International published a study showing that, in 10 out of 11 recessionary periods since 1945, gold experienced a negative total return.  Maybe you should be rethinking what you have been sold about gold’s safe haven status?

On the opposite side of the market, if one simply looks back to the period of time from 2003-2007, we will clearly see that the metals market rallied along with the equity markets for those years.  So, is it really true that the only time gold will rally is when the equity markets are in decline?

Are you starting to question the perspectives you have been sold about gold?  If not, then you should.

Time To Consider The Truth

When one is presented with these facts, can you really believe that metals are the safe haven everyone claims they are during down markets?   Can one also come to the conclusion that gold and equities markets trade inversely to each other and the reason you should be investing in gold is its safe haven status in a financial crisis?  Clearly, the answer is “no,” if you are truly honest in your analysis.

Again, when one actually looks at the facts rather than the supposition, fallacy, and fear being sold by most of the article writers and sellers of gold out there, they tell you to ignore much of what is presented about this market and begin to think for yourself. Much of what you have been fed about this market is simply wrong, and until you are able to look objectively at the market, you will likely see long periods of time where you are on the wrong side of the market purely because you bought into these suppositions, fallacies, and fear.  Or, did you already forget the pain you felt during the decline between 2011-2015? 

Why can’t we also believe in gold as a solid investment during periods of time when financial markets rally, as history clearly shows it can be?  One simply needs to develop an appropriate understanding as to when gold will rally along with the equity market or inversely to it.

Sadly, most analysts and investors do not truly understand the gold market, and just regurgitate the same fallacies over and over to prey upon your fears and greed.  Isn’t it about time you look for an objective perspective on gold which understands how the market truly works?

Gold-Eagle provides regular commentary and analysis of gold, precious metals and the economy. Be the first to be informed by signing up for our free email newsletter.

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Avi Gilburt

Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net (www.elliottwavetrader.net); a live Trading Room featuring his intraday market analysis (including S&P500, metals, oil, USD & VXX); interactive member-analyst forum; and detailed library of Elliott Wave education. Visit his website:https://www.elliottwavetrader.net. You can contact Avi at info@elliottwavetrader.net.