Gold’s 3 Biggest Myths Debunked

12/30/2011 8:15 am EST


Traders and investors might fare much better if they ignored the conventional wisdom about gold, because as these patterns show, some major misconceptions seem to dominate mainstream beliefs.

According to the famous song, on the fifth day of Christmas, "my true love gave to me, five golden rings."
So, on the fifth day after Christmas (December 30, 2011), I'm giving you threethings to know about the flaunted asset gold that completely go against mainstream financial wisdom.

Gold as a Store of Value

First, in the Wall Street gospel, gold prices lose their "disaster" premium when the economy is strong. Well, three years ago, in the March 14, 2008 Elliott Wave Theorist, Elliott Wave International president Bob Prechter went to task 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.

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As you can see, instead of falling in price when the economy was good, gold's done the opposite: Its average total return during those 11 economic expansions was a net-positive 51.95%.

Gold as a “Safe-Haven” Asset

That brings us to the second alleged "golden" rule of gold prices: The notion that gold is a surefire "safe haven" during economic contraction. Not so much.

Here again, the March 14, 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.

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Again, the supposed inverse relationship between gold and the economy did not check out.

NEXT: Gold's "Mystery" Price Action


Gold’s “Mysterious” Price Action

Which brings us to the third and final thing you should know about gold: precious metals' recent rout to a two-month low is not a riddle wrapped in a mystery, as this December 6 news item suggested:  

"Gold has been a conundrum in the past couple of months. Despite the rising sense of alarm in Europe, regular selloffs in the bond market, and relentless headlines about the demise of the single currency, gold—supposedly a safe haven against such turmoil—has been mundanely range bound."

See, while the mainstream experts were caught in the headlights of gold's December downtrend, Elliott Wave traders were presented a decidedly bearish outlook for gold and wrote:

"Gold should be at or near the end of a bounce which has unfolded over the past two days."

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The gift of objective insight into the world's most watched precious metal is truly priceless.

Follow an objective method like Elliott Wave analysis and you’ll often be able to steer clear of the herd mentality in any commodity.

See related: Merits of Elliott Wave Analysis

By the Staff at
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