The Gold Safe Haven Joke

There is an old fallacy on Wall Street that gold is a safe haven during market declines. And, this week, I have heard it again more times than I can count.  But, the problem with most people in the market is that they regurgitate sound-bytes, but care little for whether they are accurate or even factual.  

I implore all those that read my articles to think for yourselves and not assume that what is proffered in the media or in print is to be taken as gospel.  

If we place this “safe haven” perspective through the prism of “truth,” it is unable to pass the test.  This past week, we noted that a break of 2040SPX would cause a significant break of support and potentially open the door to the drop to the 1800’s in the SPX.  Now, if I told you we saw an estimated 4% drop in the SPX from the point we broke below that 2040SPX support level, and if you believed in this old Wall Street adage, you would probably think gold would be up by at least 4% from that point in time.

Well, I am sorry to disappoint you, as gold barely rallied after the SPX broke its major support in a waterfall decline event.  In fact, as the SPX continued in its melt down on Friday, the initial reaction we saw Friday morning was a pullback in gold before ending the day marginally higher.  It was even negative on the day for a period of time.  Hardly the safe haven we were led to believe.  And, worse yet, silver and GDX ended DOWN on the day.

But, did that stop the main stream media from claiming that gold rallied on Friday due to its safe haven status? No.  Just this past week, I saw several articles already coming out about gold’s safe haven status during market instability.  Unfortunately, these authors do not seem to be burdened by the facts.

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.  And, if we look at the period of time between May 2008-March 2009 (during a major decline in the equity market), we witnessed the metals also experienced a significant decline. In fact, gold lost a little more than 30% during that time. 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?

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