I am not sure if much of what is written regarding markets – especially the gold market – is based upon ignorance or just intellectual dishonesty. In either case, I am absolutely sick of it.
I saw an article recently that suggests that gold is going to $5000 for the specific reason of the Fed easing on its interest rate raising cycle. And, history proves this to be absolutely a false hope.
But, before I explain the historical perspective which eviscerates this view, I want to address a few comments that I saw in the same article.
“JPM will never let $5K oz gold trade. Every few months a trader or trading desk is found guilty of manipulating prices”
Are there cases where some big banks were caught “manipulating” prices? Of course there are. But, one must actually read those cases carefully to understand what is meant by “manipulation.” You see, these cases deal with something called “spoofing.”
Spoofing is when traders place market orders — either buying or selling securities — and then cancel them before the order is ever fulfilled. In a sense, it’s the practice of initiating fake orders, with no intention of ever seeing them executed. And, traders that engage in spoofing are usually attempting to make money on a penny or two move in a price. When you deal with high-frequency trading, this can add up to a lot of money over time.
Yet, no one seems to understand that spoofing is not what causes large downside movements in the metals markets. And, this is when it is most often used to claim that a downside move in the metals market was due to “manipulation.” In fact, if you review the cases closely, you will note that the “spoofing” occurred in BOTH directions in the market.
I go into this discussion in much more depth in this article if you are interested:
“Excellent article . . . I have a substantial portion of my portfolio in gold and silver.”
We see this all too often everywhere articles are written.
As Francis Bacon noted hundreds of years ago:
“The human understanding when it has once adopted an opinion (either being the received opinion or as being agreeable to itself) draws all things else to support and agree with it.”
Moreover as Daniel Crosby, author of The Behavioral Investor wrote:
“A 2009 study out of Ohio State found that people spend 36% more time reading an essay if it aligns with their opinion. . . Regrettably, for honest seekers of truth, it is becoming easier and easier to avoid information that doesn’t square with a cherished personal narrative.”
And, as Nobel Award winner Daniel Kahneman noted:
“Contrary to the rules of philosophers of science, who advise testing hypotheses by trying to refute them, people seek data that are likely to be compatible with the beliefs they currently hold. The confirmatory bias [of our minds] favors uncritical acceptance of suggestions and exaggerations of the likelihood of extreme and improbable events . . . [our minds are] not prone to doubt. It suppresses ambiguity and spontaneously constructs stories that are as coherent as possible.”
So, every time we see a bullish article on gold, all the gold-bugs come out of the woodwork to note their agreement with the “excellent” article. Unfortunately, the comments section should not be a point at which you determine whether an article is excellent or not. Rather, it is only when you view that article through a prism of truth can you determine whether that article is excellent or not.
Then I saw the following comment:
“I’m seeking a better understanding of what will move gold prices?
1. I thought gold would move up with inflation. I was wrong.
2. I think fear drives people to gold for wealth preservation. It hasn’t moved much like you say – it’s trading sideways!
3. With QE/rate reductions, wouldn’t money come out of bonds and treasuries and flow to equities rather than gold?
Seeking to understand the these better.”
And, it almost made me cheer out loud as this is someone who is seeking the truth to the market. And, as he correctly pointed out, gold did not move up with inflation, so there was another fallacy that was obliterated, which I really do not need to address any further.
Clearly, gold does not move as most people expect. And, that is because they are looking in the wrong place.
As the article pointed out that it will be the Fed’s expected easing cycle to cause gold to rally, clearly, the author did not bother to review historically what occurred during easing cycles.
For those of you that have invested in the metals markets over the last several decades, you may remember that Fed was full into an easing cycle as we moved into the 2010’s. And, it made everyone, including their mother, grandmother, and grandmother’s dog believe that gold was about to skyrocket on that action.
Well, back in 2011, I penned my first public article on gold, wherein I summarized my expectation at the end of the article:
“Again, since we are most probably in the final stages of this parabolic fifth wave “blow-off-top,” I would seriously consider anything approaching the $1,915 level to be a potential target for a top at this time.”
Avi Gilburt, August 22, 2011
In fact, even before topped, I responded to a question regarding how far I expect gold to correct, and my answer was the $750-$1000 region.
As we now know, gold topped within $6 of my target I set the month before, and then bottomed within $50 of the target I set years before. And, my friends, gold dropped almost $900 during a Fed easing cycle. Not only was it an interest rate easing cycle, but the Fed was even actively engaged in something called Quantitative Easing. Yes, you can read that again, as it is the truth. Gold dropped significantly during a major Fed easing cycle.
So, based upon history, will it be an easing cycle upon which you can rely to view that gold is going to rally to $5000 “soon?” I think not.
Now, do I believe that gold will be going to $5000, $1000, or even $25000? Yes. But, folks, that is based upon a 50+ year cycle. Not “soon.”
So, I will reiterate my near-term expectations. I am looking for gold to rally to the $2,428 region as my next big target over the coming several years. Yet, if we see very strong extensions, it could even take us to the $2,700 region. However, once that rally completes, we will likely see another multi-year correction take hold in the gold market, which will ultimately set up the next major rally a decade or so from now.
For those of you that are questioning how I have been able to identity the turning points in gold so accurately through the years, well, it is because I recognize that sentiment is what truly drives the gold market. And, I am able to gauge sentiment using Fibonacci Mathematics as applied through Elliott Wave analysis. It has provided me with the accurate topping call in 2011, as well as the accurate bottoming call in late 2015 – in addition to many other minor turning points throughout.
Those of you that recognize Doug Eberhardt as another public author/analyst on metals may not know that he is also a gold dealer and runs buygoldandsilversafely.com. And, I have done my more recent buying through Doug.
As he was astounded by the accuracy of our analysis, Doug made these public pronouncements about our accuracy in the metals world, based upon our Elliott Wave analysis:
“I can attest to your accuracy on actually buying both gold and silver from us as close to the bottom as one could. With gold you called it to the letter and your limit order which was placed well in advance executed perfectly. The silver limit orders were within a tight range of the lows as well . . . Your timing on buying the dips is uncanny Avi! People should be aware of this.”
“Avi has the magic touch. Listen to him . . . And I want to explain to you all what Avi did for you. He got most of you to buy the metals before the premiums shot up and before everyone ran out of product. This is the 2nd time he has done this and kudos to him for doing that for you.”
So, I can assure you that if you are waiting for the Fed easing cycle, or inflation, manipulation, or the myriad of other reasons that are pronounced throughout the media as to what drives gold, you are looking in the wrong place. Sentiment, my friends, is what drives gold up and down.
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