To know whether a diamond is real, it must cut glass. And, to know whether the bull market in gold is real, it must encompass at least one of these FOUR traits:
- A surge in demand that outpaces supply
- A falling stock market, which raises the “safe haven” appeal of precious metals.
- A real (not imagined) threat of inflation
- An increase in value relative to major foreign currencies
Right now, the Gold market can NOT check off a single one of these items. Case in point:
Supply: Demand for gold from jewelry makers – which comprises 60%-70% of the market – has plummeted to its lowest level in 20 years.
“Safe haven” appeal: From its March 2009 bottom, the U.S. stock market has soared 50% right alongside rallying gold prices.
Inflation: As the October 2009 Elliott Wave Financial Forecast (EWFF) notes: An increase in money supply is only inflationary if it is used to RAISE the total amount of credit. This is NOT happening, as both bank credit and consumer credit levels are contracting for the first time since World War II.
A gold rally in other currencies: Again, the October 2009 EWFFpresents the following close-up of Spot Gold prices VERSUS Gold denominated in foreign currencies such as the Canadian dollar, the Australian dollar, the euro, franc, pound, and yen since 2007.
The Daily Gold believes Elliot Wave is talking its own book. They have missed the entire bull market and will continue to if this piece is any indication. They throw out the jewelry argument as all bears do but they neglect growing investment demand and declining production. Compare Gold in US$ against Gold in other currencies and the fact is that Gold priced in other currencies hit an all time high well before Gold in US$.