Question: How do you know when it’s time to buy gold?
Answer: According to the mainstream experts, it's when clouds of smoke start coming out of the Fed’s overheated bailout bazooka. In other words: N-O-W.
Sorry Charlie. If ever there was a time for the supposed “inflation” premium of GOLD to appear, it was on March 18, 2009. That day, the Federal Open Market Committee announced a new plan to transfuse an additional $1.15 Trillion into the anemic economy, including a $300 billion purchase of U.S. Treasury Bonds.
By all measures this was the single largest inflationary event in U.S. history. For gold, it was hitting the bullish mother load, and prices should have soared through the roof and gone into deep-space orbit.
Yet the exact opposite occurred. On March 20, gold turned DOWN from a one-month high and has since lost more than $60 per ounce. Anyone riding the gold bandwagon was not singing happy show tunes along the way.
On the other side of the track, however, the March 18 Short Term Update set the stage for a sharp reversal in gold prices via the following insight:
“The wave structure, if we have interpreted it correctly, suggests that gold will not make a new high and in fact may be ending the rise right now.”
Zoom out and the big picture gets even more interesting: The March 20, 2009 high in gold is below the February 20 high, which itself was well beneath the March 2008 all-time peak. Since then, the Fed’s campaign to breathe new life into the economy via cash infusions and credit creation has been tireless. (Last estimate: $12.8 trillion.)
In the end, the evidence speaks for itself. Gold has not fulfilled its promise as hedge against “inflation,” or an economic safe-haven. This scenario, while shocking to the bevy of gold bugs who swarmed around the metal at the onset of the Fed’s bailout binge -- is no surprise to EWI subscribers.
One year ago in the March 14, 2008 Elliott Wave Theorist, Elliott Wave International president Bob Prechter presented the following table showing gold's performance during the 11 officially recognized recessions beginning in 1945.
Bob also plotted the Dow Jones Industrial Average into the same period and made this startling discovery: The average total return for the Dow during recessions since 1945 is 6.89%. Taking into account modern transaction costs, the Dow actually beats gold with a 6.87% return.
In Bob’s words: “The idea that gold reliably rises during recessions and depressions is wrong. In fact, like most such passionately accepted lore, it's backwards."
And, as the brand-new April 2009 Elliott Wave Financial Forecast observes: “The [Fed’s] printing press can’t stop the forces” at large.