Gold Is No “Safe Haven” In This Market – And It’s Only Getting Worse

The price of gold slumped to an 18-month low on Monday. With gold’s plunge garnering media attention lately, you are probably wondering whether gold has hit a bottom or whether it will continue to fall.

Fortunately, if you’ve been following along with my advice throughout the past year, you’ve been on the right side of the gold market.

Here’s a look at some of my gold forecasts over the past year, in which I warned my readers to beware the likely downturn of gold as far back as February:

2/21/18: There’s a risk that gold could be moving into an 18 month cycle high over the next several weeks. If gold rolls over below 1380 it would be vulnerable to at least the 1240 area. A drop below 1300 would be the signal for that.

4/23/18: Gold’s position on the long term view has turned precarious. With 4 year cycle indicators apparently heading into a downturn, that could mean another year to 18 months of consolidation or correction.

5/14/18:  The downturn in the 9-12 month cycle suggests that gold is likely to remain under pressure until at least the fourth quarter of this year. 

5/21/18: All swing cycles are now in gear in down phases. This is a nasty setup that indicates that gold is now at its most vulnerable.

6/5/18: Now here’s the really big problem for gold bugs. 1278-80 isn’t just short term trend support. It’s trend support for the secular bull market in gold that began 17 years ago. If gold ends the month of June below 1280, at the very least the next move should be to 1200. It could get worse.  With a rollover in the 4 year cycle, gold could go all the way back to the 2014 low around 1050.

As you can see, I’m not afraid to present the “bad news” scenarios here at Sure Money, and also at Wall Street Examiner.

Unfortunately for gold investors, the first leg of the bad news scenario has played out.

The question in front of us now is whether the even worse news in the bad news scenario, a decline to 1050, will play out.

So today, we’ll take a closer look at this bad news scenario…

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If Gold Doesn’t Recover Above 1205, Its Outlook Is Grim

I report the short and intermediate term indicators and cycle projections for gold and the mining stock indexes each week.

I reported on Monday that the pounding in gold was due for a respite. Cycle projections on the 9-12 month and 13-17 week cycles were both 1200. A low was overdue in the shorter time frame. Ideally a low is due on the 9-12 month cycle in a window beginning at the end of August and stretching through early December. So with the projection hit, we can start looking for a low to form.

On Monday, cash gold fell as low as 1192. As I write this on Tuesday morning, cash gold has bounced back a bit to 1197. That’s still a very precarious level. 1205 was a major support level. 1192 is critical short term trend support. If the price doesn’t hold here, and recover above 1205 within a week or so, the outlook will be grim.

To be out of the woods completely, and signal an intermediate upturn, gold’s price would need to recover above the recent short term pivot high of 1217. That seems a very long way off at this point. Right now, as a result of Monday’s selloff, there’s a 4 week cycle projection of 1173. Ouch! That’s not a guarantee of course.  It’s just an indication of the move’s potential in the short run. I think that if 1192 gives way, that potential goes from the realm of the possible to the probable.

Looking at a monthly chart, gold is a year overdue for a 4 year cycle low (blue arrows). At the same time the price is threatening to break another critical support level at 1190, and seasonal patterns show weakness in the second half of the year. If 1190 breaks, that would suggest a move to at least 1133, where another crucial test would take place. If that test failed, then no doubt gold would head back to the 2015 low of 1046.

The positive view here would point out that there’s a potential symmetrical reversal pattern in place dating from 2013.  4 year cycle tendencies, and a still positive momentum trend suggest a positive bias into 2020.  If gold holds the 1190 area, turns up and clears the downtrend at 1240, it should head back to at least 1369-75, and points beyond.

But if 1190 breaks, look out below!

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Gold Wouldn’t Save You From the 2008 Crisis. It Won’t Save You Now Either.

Mainstream pundits like to cite holding a small amount of gold as insurance against financial instability. I’m not so sure that the idea is supportable.  As a liquidity analyst, my observation would be that tight money is bad for all asset classes.

Gold can have long bull markets, but it is no safe haven. In the early days of the financial crisis from August 2007 until March 2008, it did really well, going from a low of 646 to a high of 1017. But as the crisis intensified, from March 2008 to October 2008, gold fell all the way back to a low of 681. Who needs that kind of volatility as a “safe haven?” True, the metal went on a 3 year tear after that, reaching a high of 1924 in September 2011, a gain of 182% from low to high. Stocks were recovering, but they did nowhere near as well as gold. But as opposed to being a safe haven, gold was just a better way to play the bull market in assets during that period.

That’s the fallacy of the idea as gold as a hedge against instability. It failed to act as a hedge in that 2008 crisis period, only turning persistently bullish along with the recovery in the stock market. Then it massively outperformed stocks. But with pundits recommending only 10% of your portfolio in gold, that 182% gain would have impacted your portfolio by adding just 18%.  No, at that point, early in the stock bull market, the best advice would have been to be fully long and leveraged in gold.

The other problem with the idea of gold as a hedge is that it has a history of very long secular bear markets. We had a bull market from 2001 to 2011. Great! But before that gold was in a secular bear from 1980 to 2001.  And after peaking in 2011, we’ve been stuck in a range between $600 and $800 below the all time high above $1900.

We may well be in another secular bear market, as the Fed and its cohort central banks tighten policy. To thrive in today’s world where gold is competing with all sorts of new asset classes, gold may need ultra-loose policy.


Lee Adler

2 Responses to “Gold Is No “Safe Haven” In This Market – And It’s Only Getting Worse”

  1. Gold is a safe haven. I have bought it while stationed in Guam. I held it many years. Is’nt taught in schools. I rather have Gold than a public-private currency. Paper assets are easy until you have to fight for physical certificate ownership. Gold is hated because Wall Street doesn’t make money on it. Rent and debt are taking a majority of individuals money. Copper is cheaper.

  2. That is a good balanced analysis.Many gold pundits have been wrong for some years.President Trump has indicated he wants a weak dollar .
    This may help.i am unclear on which assets will be safe havens? Us Equities ! Bitcoin

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