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Cut The Bull: Is Gold A Safe-Haven Or What?
Since always, the mainstream financial experts engage in what I like to call "Operation Cheap Suit." They "wear" certain ideas like secondhand clothes, carelessly taking them on and off as the occasion sees fit.
Case in point: The disposable notion of Gold's safe-haven status.
There is no consistent truth there, but rather, an ever-changing "wardrobe" which depends entirely on price action. To wit: When gold prices soar, the usual suspects freely don its "safe-haven" notion. Then, when prices fall, those same experts strip off the idea faster than a man on fire.
You don't have to take my word for it. The following news items from the past two years bare all the necessary details:
- Gold rockets to its highest levels of all time in early 2008: "Bullion Sales Hit Record In Stampede To Safety." (Financial Times)
- Gold plunges more than 30% from its March '08 peak: "Gold prices plunge on recession fears. Confidence is at rock bottom. No one wants to be long any commodity." (Bloomberg)
Then, there are the more immediate, near-term responses from the past month:
- "Gold prices fall as a surge in stocks weakened the precious metal's safe-haven appeal. Investors buy up gold as protection against tumultuous markets and a deteriorating economy." (AP)
- "Gold Rises On Economic Optimism... We continue to have a fairly positive correlation between economic activity, reflected by equity indices, and the precious metals." (Reuters)
Fact is, you're not going to find the "truth" in any of the usual sources. That's certain. While in Chapter 22 of his Conquer the Crash, Elliott Wave International's president Bob Prechter does list 5 reasons why "holding a healthy amount of gold and silver" is a good idea in a deflationary depression, in his March 14, 2008 Elliott Wave Theorist, he presented an indisputable case AGAINST the idea that "Gold always goes up in recessions and depressions."
The first piece of evidence: 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.
The most powerful myth-debunking punch of all, though, came via the second chart of gold's performance -- this time during periods of financial growth.
In Bob's own words: "All huge gains in gold have come while the economy was expanding… The idea that gold reliably rises during recessions and depressions is wrong. In fact, like most such passionately accepted lore, it's backwards."