No Safe Haven: Gold Theory Doesn’t Work While Commodities Fall

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Although we don’t let people’s opinions influence our analysis, we like to see what others are saying. Just google gold price news and all you’ll see are talks about the safe-haven aspect of gold, like if it was the one thing that matters. To us, it’s the least important thing right now.

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Looking back in time, we have seen many periods where the stock market declined and gold prices fell too. For example during the bear market of early 2000’s, gold prices fell from 2000 until 2002; during the recession of 2009, gold prices fell while the market crashed and they didn’t turn up until the stock market did in 2009. Even in the crash of 1987, gold prices didn’t post real gains. Therefore, even if stock markets collapsed from this point, that wouldn’t make us more bullish on gold.

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What we’ve never seen is gold prices rising while commodities markets fall and the dollar is strong. And those are the main things to watch right now. Commodities peaked in 2011 and so did gold. Since then, they have been in a falling market and further declines in US stocks won’t necessarily help them turn upward. Saying at this point that gold will rise because of a stock market decline is like saying that you’ll lose weight if you eat broccoli while not cutting down your daily dose of donuts.

Gold prices since 2014

Gold prices since 2014. Source: MetalMiner analysis of Stockcharts.com data.

On top of that, the rest of precious metals are falling, with palladium, platinum and silver hitting multi-year lows. Also, as pointed out in July, gold is getting into trouble after breaking a key support level. The price increase that we saw in August looks like a shy rally and nothing suggest that prices have hit bottom. That’s regardless of what the safe-haven theorists say.

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