prechter on gold

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    NEW YORK (CBS.MW) - A Prechter point penetrated? Many readers want to know what the Elliott Wave guru has to say now that gold has closed above $422.

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    Robert G. Prechter's lieutenants, Steve Hochberg and Peter Kendall, conceded in their most recent Elliott Wave Financial Forecaster that "a close beyond $422 would cause them to re-evaluate the long-standing official Prechter position that gold was just in a peaking bear market rally. (See my Jan. 5 column).

    Gold promptly closed above $422, several times. And as I write this (too late on Sunday night), it is above $426 in the Asia-Pacific markets.

    Now the Big P himself has pronounced in his big-picture Elliott Wave Theorist, just to hand.

    This is Bob Prechter's statement on gold, in its entirety:

    "No one wanted gold at the February 2001 low, when it was $255/oz. Since it rose above 360, it has been in demand. The hype in the gold market is tremendous, and even local newspapers talk about it. Gold has been losing momentum for several months. It has reached the low 400s, the upper end of our target range for this wave pattern, as cited in the October 3, 2003, issue of EWT. Commercials, typically savvy players, hold a record short position in gold."

    OK, I admit my journalistic antennae are twanging, even allowing for EWT's snail-mail lead times. This simply isn't an adequate response to gold's crossing of the line so specifically drawn -- particularly after so many Prechter retreats. (See my Nov. 24column).

    Which still does not, of course, mean that gold might not fall.

    Even Prechter's point about commercials, true but not new, is cogently disputed by the gold bugs. (Visit this link and scroll to "Below The Waterline" for Reg Howe's case that the long-developing commercial position is a front for central banks.)

    But Mark Hulbert and I have known Bob Prechter for more than 20 years. We believe he's sincere.

    Of course, being on the wrong side of a market, like being under torture, is more than the strongest character can stand.

    It's not a pretty sight.

    A lot of our e-mail focuses on the question of why we continue to follow Prechter at all.

    The short answer: by Hulbert Financial Digest count, the stock market timing of Elliot Wave Financial Forecast (which HFD treats as the successor to Elliott Wave Theorist after the latter stopped giving portfolio advice) has outperformed the Wilshire 5000on a risk-adjusted basis over the entire period since July 1980.

    Over the past five years, it gained 3.5 percent on average annually, vs. 1.8 percent for theWilshire 5000.

    This, however, was the Prechter people's investors portfolio, which switches between the stock market and cash. The traders portfolio actually goes short, with the result that it has an annualized loss of close to 20 percent since 1985, when buying and holding produced an annualized gain of more than 12 percent.

    Hence, of course, the angry e-mail.

    In addition, we remember Prechter's remarkable flashes of success, notably calling the stock market rally in the early 1980s, in the teeth of 15 years of gloom, and also the early 1980s gold bounce.

    Statisticians might not regard these as technically significant. But they would say the same about the career of great speculators like the thrice-bankupt Jesse Livermore.

    You have to be impressed, too, by the sheer versatility of Prechter's thinking. The current Elliot Wave Theorist is an explosion of contrary opinion, from skepticism about the economy and the stock market to (short-term) optimism on the dollar and inflation -- i.e. Prechter thinks price levels will fall.

    This isn't enough to appease out angry e-mailers. But it's something to think about.

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