Which Way is Gold Going ??

Gold: What Is The Economy Usually Doing When It Goes Up?
Research proves wrong the idea that gold reliably rises during recessions, says EWI President Robert Prechter.September 21, 2010

By Elliott Wave International

...If gold isn’t going up when the economy is contracting, when is it going up? Table 4 (see chart on p. 24 of this free Club EWI report -- Ed.) answers the question: All the huge gains in gold have come while the economy was expanding. This is true of the three most dramatic gold gains of the past century:

(1) Congress changed the official price of gold from $20.67 to $35 per ounce in 1934, during an economic expansion. The gain against the dollar was 69 percent.
(2) The entire bull market from 1970 to 1980 occurred during an economic expansion... [Of] the $815 per ounce that gold rose from 1970 to 1980, $725 worth of it came while the economy was expanding.
(3) The entire bull market from 2001 to the present occurred during an economic expansion... [Of] the $748 per ounce that gold has risen since February 2001, $726 worth of it has come while the economy was expanding.

Even lesser rises in gold, such as the two big rallies during the 1980s, came during economic expansions. So the biggest gains in gold, by far, have occurred while the economy was in expansion, not contraction.

Why is such the case? Simple: During expansions, liquidity is available, and it has to go somewhere. Sometimes it goes into stocks, sometimes it goes into gold, and sometimes it goes into both. During times of extreme credit inflation, such as we have experienced over the past three decades, the moves in these markets during economic expansions are likewise extreme. When recession hits, liquidity dries up, and investors stop buying. During depressions, they sell assets with a vengeance.

Of course, we socionomists do not believe in the external causality of investment price movements. Recessions and expansions do not make investment prices move up and down. Fluctuations in social mood propel the economy, liquidity and movements in investment prices. So the only reason we bother with studies like this is to de-bunk various commonly held views of financial causality. Now we know: The idea that gold reliably rises during recessions and depressions is wrong; in fact, like most such passionately accepted lore, it’s backwards.

Finish reading this 16-chapter paper online now, free! Download Robert Prechter's FREE 40-Page Gold and Silver eBook.Here's what else you'll learn:

• Why Gold Is Still Money
• What Long Term Analysis of Gold Stocks Shows
• Study: Does Gold Always Go Up in Recessions and Depressions?
• True or False: Gold Is Better Than Stocks During Expansions
• What’s Next for Gold?
• Elliott Waves in the Silver Market
• MORE

Keep reading this free report now -- Download Robert Prechter's FREE 40-Page Gold and Silver eBook.

This article was syndicated by Elliott Wave International and was originally published under the headline Gold: What Is The Economy Usually Doing When It Goes Up?. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

the Hindenburg Omen . . is a Crash coming?

The Hindenburg Omen -- Omen-ous or Not?
Elliott Wave International Chief Market Analyst Steve Hochberg Sheds Light on a Feared Technical IndicatorAugust 24, 2010

By Elliott Wave International

On Aug. 12, volatile market action coincided with a technical signal called the Hindenburg Omen, whereby a relatively high number of new highs and lows in individual stocks occur at the same time.

This indicator instantly gained an enormous amount of media attention. So we sat down with Steve Hochberg, EWI's chief market analyst and close colleague of Robert Prechter, to ask him about the now-infamous Hindenburg Omen.

EWI: Steve, recently a market indicator called the Hindenburg Omen has been in the news, what is going on?

Steve Hochberg: Discussion of this indicator certainly has been everywhere. Someone emailed us and said they even saw it mentioned on the front page of the Drudge Report! Look, headline-grabbing names grab headlines. Essentially it measures the fractured nature of market action. Over the years, we've discussed numerous times in our publications how a fractured market is oftentimes an unhealthy market. The multiple non-confirmations registered at the recent August 9 stock high, which we talked about in the Short Term Update, are another manifestation of this bearish behavior. The message is consistent with how we view the Elliott wave structure.

EWI: Why are people interested in this particular indicator?

SH: That's a good question, and it speaks to a broader issue, viz., the "re-emergence" of technical analysis into the mainstream consciousness of market participants. In Prechter's Perspective, Robert Prechter discusses the timing of the popularity of technical analysis, of which Elliott waves, or pattern recognition, is the highest form:

"In long term bull markets, no one really needs market timing because the market is always going up. This was true during the 1950s and 1960s, a period of market strength. And it has been mostly true since 1982. From 1966 to 1982, though, the market was very cyclic, so investors couldn't sleep like babies with a buy-and-hold blanket like they do today."

The S&P 500 has a negative return over at least the past 12 years, so investors are naturally questioning the "broadly diversified, buy and hold" stance advocated by 90%+ of investment advisors. EWI subscribers are way ahead of the mass of investors because as the bear market progresses, the media should show increased focus on technical analysis, including patterns such as head-and-shoulders as well as trendlines, moving averages and, yes, even Elliott waves, just as they did during the last great bear market from 1966 to 1982. It will be an exciting time for those with even a cursory knowledge of the technicals.

EWI: So, what are you seeing now?

SH: Obviously we cannot give away our analysis, but the wave structure is clear, the myriad indicators we keep offer compelling confirmation and the market is accommodating our forecast. If readers have any interest in what this means for not only the stock market, but also all other markets, please give us a read to see if our work might be useful in helping to formulate your investment portfolio. We think it will be a worthwhile endeavor.

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