Time To Buy Gold As A 'Safe Haven'

By: Avi_Gilburt

For those that follow me regularly, you will know that I have been tracking a set up for the GLD as a proxy for gold. I believe that the GLD can outperform the general equity market once we confirm a long term break out has begun, and I still think we can see it in occur in 2018. This week, I will provide an update to the GLD. While I have gone on record as to why I do not think the GLD is a wise long-term investment hold, I will still use it to track the market movements.

I want to start this write-up to dispel the notion of the metals being a “safe haven,” as many in the media are now parroting. I have discussed this topic many times in the years I have been writing, but I just want to set everyone straight on this issue as it rears its ugly head yet again.

Every time the media sees the metals rally when the stock market declines, they begin to parrot the ridiculous claim that the metals are a safe haven for market volatility. Anyone who makes such a claim knows nothing of market history. If they did, they would not ever make such a claim.

In fact, I am so disgusted when I see advertisements trying to sell gold to the public by striking fear in the public regarding an “imminent stock market crash,” for which you should buy gold to “protect” your assets. Nothing could be further from the truth, especially if one is interested in the facts, rather than the propaganda of fear being promoted by Wall Street analysts, article writers, and sellers of gold.

Now, don't misunderstand me. I am a huge metals bull. But, I buy metals because I see the potential for a multi-decade bull market about to take hold, not because I see a massive stock market collapse (which I don't right now). I also don't prey upon investor's fears in order to convince them to buy gold, because, believe it or not, I expect for the equity markets and metals to continue to rally together. Yes, you heard me right.

I have not seen a single one of these "doom" articles note this fact, but the metals and the miners have seen one of their strongest rallies in the first half of 2016, and it was alongside a strong rally in the equity market as well. If you don't believe me because you have bought into all you have been sold about how they trade inversely, then I suggest you look at the two charts side by side in the first half of 2016.

You see, the metals rallied quite strongly in early 2016, and we did not even have a stock market crash. In fact, as I warned would occur in late 2015, they rallied together. I bet many of you did not even think this is possible. Now, after you pick your chin up off the floor, you should also realize that this is not the first time this has occurred, nor will it be the last.

So, allow me to show you why only expecting an inverse correlation between equities and metals is just outright wrong.

We will begin with the 2007-2009 time frame, which evidenced the most significant period of market volatility since the Great Depression. Let's see if we can glean anything from the metals action in order to determine whether they are the safe haven everyone is selling you on.

We all know that the S&P 500 topped in October of 2007 and began an estimated 300-point decline into March of 2008, and 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 supposedly rising during a period of market volatility.

But, when we then look toward the May 2008-March 2009 decline in the equity market, we have clear evidence that the metals also experienced significant declines within that time period. In fact, gold lost a little more than 30% during that time period. So, here we have a period of time where the metals were moving in the same direction as the equity markets, and clearly not acting like a supposed "safe haven." But gold also found a bottom and began to rally four months before the equity markets, after which time, they began to rally together again for two years.

So, when one is presented with these facts, does it make sense that the metals are surely going to rise during periods of market volatility? Are metals really the "safe haven" everyone believes they are during down markets? Are these markets inversely correlated as so many claim?

If you need further evidence, consider this additional fact. Back in 2008, the folks at Elliott Wave International published a study that showed that in 10 out of 11 recessionary periods since 1945 gold experienced a negative total return.

For further evidence that one should not assume the two markets move inversely, one simply has to look back to the period of time between 2003-2008. During those 5 years, the metals rallied alongside the equity markets. And, no, this is not a misprint.

So, 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 these two markets trade inversely with each other? So, should you be buying metals only because you believe the stock market is going to crash?

Again, when one actually looks at the facts rather than the supposition, fallacy and fear being sold by most of the article writers and gold peddlers out there, it tells you to ignore much of what is presented about this market, and begin to think for yourself. In fact, you now know more “truth” about the metals market than most of the article writers you have been reading.

But, I have clearly digressed from my usual weekend analysis. So, let’s move on to the main event.

Last weekend, I provided to my ElliottWaveTrader.net subscribers the path through which the GLD can rally back to the 128 region. On Friday, the market gapped up right to that resistance, and spent the entire day consolidating below it. If the market has the intention of finally breaking out here, we need to see a strong move through 128 (with follow through over 128.50), and we can then set our micro support to 127.

Based upon the micro structure, a strong move through 128.50 should not allow us to break back below 127 if the market is truly as bullish as the larger degree wave structure suggests. Moreover, continuation through 131 has us looking for acceleration up to 138.

However, if we break back down below 126.50 from the 128 region, it opens the door to dropping below the levels at which we bottomed last week.

See charts illustrating the wave counts on the GLD.

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 emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.

© 2018 Copyright Avi Gilburt - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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