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Monday, June 7, 2010

Robert Prechter Maintains 40 Percent Gold Correction

At the Reuters Investment Outlook Summit in New York, Elliott Wave president Robert Prechter maintained gold could fall 40 percent in a major market correction.

Prechter is trying to weasel out of his projection in January that gold will plunge by 40 percent, saying it couldn't continue on because of deflation and too many institutions and people owing it.

Of course the assertion of deflation is ridiculous, and unless you trust the government numbers, which they massage and tweak to their benefit, deflation hasn't been around yet, and only once in decades has their been a deflationary year.

There is the crowd that redefines inflation and deflation in order to say there is deflation, but they can't be taken serious, and for everyday items people buy in America, there hasn't been deflation, unless want to pick out a couple out of the bunch to justify your point.

The weasel aspect I mentioned was when he said gold was being stalled by technical momentum and since 2006 the increase has subsequently been experienced at a lower rate, which he covered his butt by saying, "That is not a guarantee of change but a sign that one is likely."

Anything is likely, so that's irrelevant.

What must be taken into consideration is the sovereign debt crisis in Europe, the Chinese battling inflation and the so-called jobless recovery in America, which isn't one, as the recent job numbers revealed, where the government has propped up the jobs market by hiring people, while the private sector has been holding back, not trusting in the assertions of the government, as they're the ones on the street experiencing the realities of the economy on a local, regional, national and international basis.

That means investors will continue to seek safety, and there is nothing safer than gold at this time, and there is a growing lack of faith in paper currencies around the world, with gold really being the only alternative.

I think the idea of gold being over-bought is where Prechter misses it, as that may be true in general among institutional investors, but the vast majority of people on the street haven't even entered into the gold market yet, and until that happens, there's not going to be a bubble, let alone one that bursts, neither will there be a major correction to the degree Prechter calls for, although there will always be some corrections in any market.

Demand for safety and concern over inflation is what is primarily driving gold prices up, and that isn't going to change or correct, based on what Prechter calls "technical indicators," which to me is a bunch of BS and mumbo jumbo.

The idea that 98 percent of people are positive about gold is another somewhat irrelevant statement. Obviously that 98 percent would have to have been culled from a small group of a certain type of investor.

What he meant by that is if everyone is positive, he's going to run the other direction. In normal investing circumstances that's not a bad strategy, but with gold in these economic circumstances it doesn't make sense.

Gold isn't going to correct to that level at this time because there is simply nothing out there to make it happen. Everything is pointing to instability and ongoing recession.

And if you believe there has been a weak recovery, then call what's coming a double-dip recession.

Either way, gold prices are going to continue going up, and while there will be sell-offs and taking of profits like a couple of weeks ago, I don't see anything that will change the price of gold going up for years into the future.

Now that doesn't mean there will never be a correction, but it's not going to be for some time, and it won't happen until there is a real bubble market similar to the housing bubble, where clueless people bought homes to make some quick money, not understanding they were at the top of the ponzi scheme. Gold isn't anywhere near that, and there is too much inflation and geo-political situations to change that in the near term.

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