Over the last few months, a “perfect (fundamental) storm” for rising gold prices has raged across every financial thoroughfare from Wall Street to Sesame Street. (Google: Economic downturn comes to ‘Avenue Q.’)

Inflation hedge, anyone? From mid-March to May 27, a record run-up in crude oil vaulted prices above $100-, $115-, and $130-per barrel. At the same time, A May 26 Conference Board report revealed that inflationary expectations have risen to a new, all-time high, alongside a record-breaking number of Americans filing for government stamps due to “rising food costs.” (AP)

Safe-haven appeal: On May 26, the S&P Case/Shiller Home Price Index showed a 14.4% decline from year ago levels to a new record low. Also, US Consumer Confidence plunged to its lowest level in 16 years in May.

Inverse to stocks: The Dow Jones Industrial Average remains more than 1000 points BELOW its October 9, 2007 peak.

Tight Supply: A recent Gold Survey review showed that mine production in 2007 was at an 11-year low, its second year of decline.

Yet — the yellow metal has been about as airborne as Big Bird, the giant yellow condor that can’t fly. To wit: From their March 17 peak, gold prices plummeted 17% before turning weakly up in early May. As I write, the market stands at a two-week low.

(Gold Loses Its Luster. When the larger trend turns down, nothing can stop prices from falling. The May 28 Short Term Update shows you original price charts and objective insight into the “internal” message coming from Gold. Read it online now.)

Gold’s selloff is not a “gut check,” i.e. leap of bullish faith. Nor is it a reaction to “falling crude prices,” which likely have only just began to drop. As for what it is, EWI founder and CEO Bob Prechter sheds light on the matter in the 2004 “Interviews book” Prechter’s Perspective.

“Gold is a wonderful reflector of the Wave Principle because unlike, say, pork bellies, it is traded by people around the globe, so the prime mover is the psychology of human beings at the most shared and basic level. If you trade gold, think about using Elliott. It will keep you on track much of the time.”

And: “The gold price is not a function of fundamentals but of market dynamics. No sudden event can change those dynamics.”

Now, consider what our March 14 Short Term Update said just days ahead of the market’s high on March 17: “Gold hit the psychological motherlode when it pushed to $1000. We may have to wait until closer to the end of next week before prices make a turn lower, but any decline beneath $960 should be a clear early warning that a declining phase is starting.”

Directly off the metal’s peak, the March 17 Short Term Update follow-up was certain: “This reversal looks like the real deal.”

Bottom line: You “news,” you lose. If, however, you want to stay AHEAD of the major turns in gold’s trend, a risk-free subscription to Financial Forecast Service includes instant access to Elliott Wave Financial Forecast’s long-term picture of precious metals and Short Term Update’s near-term take. Learn More.

Elliott Wave International