NEW YORK The price of gold could drop 40 percent from its all-time high because of bearish technical momentum and deflation amid a European debt crisis, said Elliott Wave International President Robert Prechter on Monday.
Prechter said at the Reuters Investment Outlook Summit in New York that recent readings of gold market psychology showed a 98 percent bullishness in the metal, the highest ever recorded for any physical commodity.
He said, however, that technical momentum was stalling for gold as the rate of increase had peaked in 2006, and that each subsequent rally since then has risen at a slower rate.
"That is not a guarantee of change but a sign that one is likely."
In January, he had forecast that gold could drop at least 40 percent from its peak value because of deflation and over-ownership.
Asked if Prechter still expected gold to correct 40 percent, he said that extremes in technical indicators still "leave gold vulnerable to that large of a decline."
"I still feel that gold is not going to the moon here. It's not a market that you want to be long, just as you didn't want to be long stock in the first quarter."
In addition, Prechter said investors should be out of the equity markets completely and he continued to expect U.S. stocks will fall below the March 2009 low of about 666 points on the S&P 500 index. <.
Prechter is known for forecasting a big bull market in stocks in 1982 and for getting out before the 1987 stock market crash.
On Monday, gold rallied above $1,240 an ounce on safe-haven play as funds piled in for safety because of ongoing fears about euro-zone credit contagion. Gold is now less than $10 below its record of $1,248.95 set on May 14.
"I think that gold is biding its time. It's real money, and I think there is a place for it in our portfolios."
"In terms of timing, the time to get excited about gold was back in 2001 when no one wanted it, and now everyone seems to want it, so I don't."
(Editing by Padraic Cassidy)