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Cliff Wachtel
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Cliff Wachtel, CPA, is currently the Director of Market Research, New Media and Training for Caesartrade.com, a fast growing forex and CFD broker. He covers a variety of topics including global market drivers, forex, currency hedged and diversified income investing, and is currently working on a... More
My company:
THE SENSIBLE GUIDE TO FOREX
My blog:
THE SENSIBLE GUIDE TO FOREX
My book:
The Sensible Guide To Forex: Safer, Smarter Ways To Survive & Prosper From The Start
  • A CLASSIC MISUNDERSTANDING OF GOLD FROM GARTMAN, THE CORRECTION, AND SOLUTION 0 comments
    May 16, 2012 12:29 PM | about stocks: GLD, PHYS, GREK, EWP, EWI, FXE, UUP, UDN, ERO, FXA, FXB, FXC, FXF, EWJ, FXY

    Dennis Gartman On Gold: 'Safe Havens Do Not Fall 7% In Two Weeks

    Wachtel on Gartman: Real Market Experts Understand Gold Is Not A Safe Haven Asset, Dennis, Please Read

    The following is a response to the article: Dennis Gartman On Gold: 'Safe Havens Do Not Fall 7% In Two Weeks, in which he reveals a number of dangerous misconceptions about gold, including:

    1. Gold is a safe haven asset

    2. Safe haven assets are not volatile

    3. Safe haven assets are by definition sound stores of value

    "Save havens do not fall 7% in two weeks as gold in dollar terms has done. Save havens do not fall 3.6% in two weeks as gold in EUR terms has done.

    Safe havens are safe. Safe havens are stable; gold is not safe and certainly it is not stable and to think otherwise is to learn a very serious lesson in the course of the past two weeks."

    Here's the correction of above errors that everyone needs to understand

    1. A safe haven asset is not an asset that has lower risk. It is simply an asset that moves in the opposite direction of risk assets like stocks (in general). For example the the USD is considered a safe haven, yet it has fallen dramatically vs. a variety of "risk" assets over the past decades.

    For numerous examples of this, see: WITH EU READY TO PRINT OR DIE-AVOID MOST COMMON FATAL INVESTOR MISTAKE

    2. Safe haven assets are therefore not necessarily safer stores of long term value, never have been. That's not the meaning of the term. BI editors should be aware of that. For example, the CAD is considered a risk asset and risk currency, yet it is a far safer store of value than the USD due to its far more responsibly managed banking sector and fiscal/monetary policy

    3. Gold is a currency hedge, neither risk nor safe haven asset. It can rise or fall in good or bad times, depending on whether markets feel greater or lesser confidence in purchasing power of fiat currency, or in times of rising extreme fear (like NOW due to rising contagion risk) when demand for liquidity (related overrides inflation/loss of purchasing power fears)

    For full details see: The Secret To What Really Drives Gold Prices

    That's what's happening now, gold liquidated as markets want cash over preservation of purchasing power - have seen similar behavior at earlier stages of EU crisis panic, also when US markets dove late 2008- early 2009 - nothing new here.

    It's quite clear that EU will need to print Euros just to buy time to prevent contagion, see:

    MAULDIN: Germany Has Waved The White Flag And Will Allow Printing And Inflation

    EUR to lose value, is second most widely held currency. Once panic subsides, most likely due to new 'stimulus/money printing' (yes, in this case it will indeed be the same thing, technicalities aside), gold has excellent chance of rising, barring massive central bank dumping.

    Central banks will have be printing money/risking inflation because is more politically expedient than raising taxes and cutting benefits and jobs (French President Hollande was elected to do this, Greek government voted out because it didn't, Merkel losing for similar reasons.

    As governments inevitably devalue currencies to further policy ends, they'll be taking our savings down with those currencies.

    For the only layman's guide to protecting yourself against this widespread loss of small investor private wealth to fund public debt and bank bailouts you need: The Sensible Guide to Forex: Safer, Smarter Ways to Prosper from the Start. See this link for description of the book.

    The above concepts are covered in greater detail in the book.

    Advanced reviews soon to be publicly available at: thesensibleguidetoforex.com

    DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING DECISIONS LIES SOLELY WITH THE READER. IF WE REALLY KNEW WHAT WOULD HAPPEN, WE WOULDN'T BE TELLING YOU FOR FREE, NOW WOULD WE?

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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