Prechter Bearish on Gold….Water is Wet

Bob Prechter of Elliot Wave and Deflation fame, said that Gold is over-owned and will drop 40%.

One of the typical bear arguments is that Gold is over-owned or a crowded trade. This is entirely false, as Gold is only 0.7% of global assets. While more and more investors may own it, the reality is that they own so little of it in their portfolios. The only folks who own more than a 5-10% weighting are the extreme gold bugs and true believers. Sometime Gold will drop 40%. However, we suspect that drop will begin closer to $10,000/oz than $1000/oz.

Prechter has made some great calls in the past, but his cult-like devotion to Elliot Wave Theory has caused him to not only completely miss the move in Gold but repeatedly call for steep downturns. Moreover, the dollar bugs completely miss the fact that Gold has been rising in all currencies. Go back and check how Gold has performed during various periods of the US$ being flat. Since Jan 1, 2005, the US$ is down 3% but Gold is up 150%. Since September 15, 2008, the US$ is flat but Gold is up 39%. There are times that Gold and the US$ can rise together. It happened in 2005 and it happened in late 2008/early 2009. It could happen again for a portion of 2010.

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