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The Myth Of Gold As Safehaven at Trader’s Narrative

The Myth Of Gold As Safehaven

Deep down inside the really hardcore gold bugs want the stock market to crash, gold to go to $3000 (or more) and maybe even have the Fed abolished.

While I do sympathize with their last fantasy, the reality is that even if the stock market does “crash” as they wish, rather than zoom higher, gold and gold stocks will probably fall as well.

I have no idea how this myth was perpetrated but most people believe that gold and gold stocks are the mirror opposite of the stock market. That one loses when the other wins.

Nothing could be further from the truth. History shows that whenever we’ve had a stock market crash, gold has never been a safehaven.

That is to say you would have lost money even if you sold stocks and bought gold ahead of time in anticipation or perfect fore-knowledge of the crash.

Although the recent market swoon is not even approaching “crash” levels, it is a good example of this:

gold bugs SPX no crash protection.png

In the chart, the Gold Bugs Index (HUI) is the candlesticks with the axis on the right. And the S&P 500 (SPX) is the line in the chart with the axis on the left.

If you don’t believe me, go back to any stock market crash and see for yourself. And if you’re still a gold bug, it may be time to face reality and accept that our recent gold bull market is over.

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7 Responses to “The Myth Of Gold As Safehaven”  

  1. 1 Bill Luby

    Excellent post, Babak.

  2. 2 J at Home Finance Freedom

    Yes, recent advice to buy gold perplexed me because, as you say, I looked at the last several years and gold seemed cyclical (not countercyclical) and up (peaking?), not down now.

  3. 3 The Word

    Although I agree that gold and gold stock has a positive beta > 0, and therefore follows market direction, I not sure you made the point adequately in the previous post the Gold and Gold stocks are in a Bear market. I don’t think we can make that conclusion just yet. Furthermore calling a top on the k-ratio alone, seems adventurous to me.

  4. 4 brody

    Gold is a hedge against inflation, nobody said it was a good investment. As long as inflation is steady, gold will rise, their is no need for a stock market crash.

  5. 5 Daniel @Brody

    Couldn’t agree more. Though I am doubtful that Gold is going to $10,000 or anything close. As long as there are better returns elsewhere, gold will not be a great investment. It’s good for jewellery and wiring, otherwise, it’s useless.

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