Nov. 2, 2014 7:40 AM ET
Summary
- Too many "reasons" for a gold rally have failed.
- Frustration is setting in for metals bulls.
- Upcoming week's expectations.
WARNING: This article contains content which may be difficult for die-hard gold-bugs.
Over the last 3 years, we have heard a multitude of reasons as to why gold will rally. Many have pointed to China, India, Russia, Crimea, quantitative easing, conflicts in the middle-east, seasonality, the expected crash in the US Dollar, etc. And, recently, many have even stretched their fantasies to expecting that the Ebola crisis will cause gold to soar. But, as we now know, none of these reasons have caused the rally so many have been expecting.
Clearly, anyone who believes in "reasons" for the metals to rise wrongly believes that the market is driven by logic. Note what this commenter wrote to another Seeking Alpha contributor:
You know something? Your article is so well written, so "clean", and so logical constructed, that it can only be WRONG. Each time I've trusted in this kind of speech, I've lost money.
Another commenter posted this to a recent gold article:
I suppose we might as well add Russian gold buying to the never-ending list of failed reasons why gold should go up.
After 3+ years, it seems these commenters have finally figured out what most analysts still have not: the metals market is not driven by reason or logic. You can present as many logical arguments as you want to the market, but gold is just not listening, nor does it really care.
Think about it. If the market was really driven by logic, would we not employ the talents of logicians to divine the direction of gold? When was the last time you saw someone recognize a logician for their accurate analysis on the price movements of gold?
But, sadly, it has taken significant losses for many to finally begin to figure out that these "reasons" simply have no effect upon the metals, even though I have been trying to enlighten readers for the last three years that the true driver of the metals' movement is market sentiment.
And, as many of you know, I love quoting Ben Franklin, who supposedly coined the term "pain instructs." Unfortunately, it has taken "pain" to cause some investors, like the ones quoted above, to finally open their eyes. But, amazingly, many still refuse to see the truth, despite the amount of pain they are currently enduring. They continue to come up with excuses, such as "manipulation," or, as we have seen lately, "the market got it wrong," which are truly akin to placebo-type salve applied to their open wounds.
To that end, I would like to quote another commenter to a recent Seeking Alpha gold article:
"I'm not a Gold Bug Basher, but I am amused every time that when Gold goes up it validates the bugs but when it goes down it's either irrelevant or a conspiracy. . . Sometimes I wish I was a Gold Bug because I would NEVER be wrong (regardless of what Mr. Market told me)."
This commenter is clearly speaking of "bugs," such as the likes of Sprott or Schiff, who are always presenting the latest and greatest reasons as to why metals will gap up by 50% overnight. Yet, silver has now lost almost 70% of its value from its 2011 highs, while they were strongly suggesting you buy it at the 2011 highs, and all the way down since that time.
You see, when markets are going up, anyone who is always bullish is looked upon as a genius.
So, they gained credibility because they were bullish while metals were going up. And, when markets are going down, anyone who is always bearish is then looked upon as the latest and greatest "genius." This is simply how market analysts, advisors and prognosticators are viewed, and it is a result of human nature.
But, does anyone question why the bullish "genius" did not recognize the signs of reversal? If they really understood the market to the extent to which the public formerly believed and trusted, should they not have been able to see the correction coming? But, now that the market has moved in the completely opposite direction, the former "geniuses" are now viewed by most as buffoons. And, the funny thing about the market is that once we begin the next rally higher, these "geniuses," turned buffoons, will then be viewed as geniuses, once again. Ah, the life of a perma-anything-analyst.
And, if you really wanted to dig even deeper, you may even contemplate the following proposition. We know that metals perma-bulls provide you with the same reasons over and over as to why the metals will rally to new all-time highs. Yet, the metals continue to fall, with silver falling 70%, despite all these "reasons" it should rally. But, when metals turn around and begin to rally strongly, will their cited "reasons" have changed? Clearly, the answer is "no."
So, one who is being intellectually honest should be asking themselves "what has really changed in this circumstance if the reasons have not?" And, as you know from me for the last 3+ years, the only thing that will have changed is market sentiment. Therefore, one should be coming to the logical conclusion that the reasons are not pushing gold higher or lower - as they are the same reasons that were there when gold went up or down - but it is truly sentiment which has been the driver of gold the entire time, both up and down. Reasons, or as most refer to it, "fundamentals," do not control metals. Again, pain should have finally led you to this conclusion if you were not willing to accept it years ago.
Therefore, to be bluntly truthful and honest about this, it should not be considered "genius" to maintain a single perspective all the time, as the market will always move in the opposite direction of your perspective, in addition to with your perspective. Is there any true genius in that?
Markets are two directional, and one has to be able to recognize changes of direction early enough so they are not holding an asset for a 70% haircut. So, I have always taken the position that investors should ignore anyone and everyone who is a "perma-anything." I mean, do you really need to ask a perma-bull when to be buying? You know their answer is "always." So, why even bother reading them?
Well, if they want to admit it or not, the main reason people read them is to make themselves feel better about being in a losing position. As we all know, misery loves company. And, these perma-bulls or "bugs" will always validate your losing perspective. They will tell you that you are smarter than everyone else in the market for holding on to your 70% loss position. They utilize fear tactics to imprison you within their vortex of insanity, promising you that, tomorrow, modern civilization will cease to exist as we now know it and your gold will skyrocket because of it.
But, are you investing to feel good about your "losing" position? Are you investing to feel like you are smarter than everyone else, even though you are losing money? Or are you investing in metals to increase or protect your relative net worth? Hopefully, pain will instruct you too before it is too late. And, if not, then consider giving your money away to charity, because at least then you would be benefiting society with your desire to part with your money.
But, I digress. So, please allow me to move on to the main point of my article. For all of you who have completely ignored my warnings for the last three years about allowing news stories to shape your metals investments, this update is dedicated to you.
I believe I have finally found a news story so important to the metals world that it must cause a rise in gold. Even I cannot ignore the serious implications of this story. It is something that is so earth-shattering, that gold must soar to $2000+ overnight. Yes, folks, I have discovered THE news story that will force gold to surge skyward. I sincerely hope you are sitting down, because this "reason" has a significantly greater probability at moving the price of gold than any other reason which has been paraded before you over the last 3+ years. Mr. Sprott and Mr. Schiff, are you listening; do I have your attention?
It was reported that a NASA satellite has supposedly captured pictures of a UFO, the size of the earth, hovering around the sun. Yes, this is THE news event that will cause gold to rally.
My friends, aliens want our gold. They are on their way to the earth, and when they arrive, they will try to take all our gold. So, I beseech all who read my articles to do what you can to hide your gold from the aliens. Whatever gold they will not be able to find, and will be left here on earth after they leave, will be worth a fortune. So, this is likely going to be the catalyst which will cause gold to rally to $5000+, like many have been claiming will happen for so long. But, their problem was that they did not know the "real" reason that would cause this price appreciation. So, remember, you heard it here first. Consider yourself forewarned.
Now that we know the true reason as to why gold will soon rally, let's look at how we think its price will bottom first before the aliens get here, because, trust me, aliens love sales. Last weekend, I noted that silver had a much clearer downside set up, and said that gold was a bit more questionable. But, I also noted that if GLD would follow through on its set up, it should take out the 2013 low.
So, as the week began, and the set up became more clear, I began putting out charts noting the downside set up, along with resistance levels, which, as long as we remained below, would keep the pressure on the metals to the downside. In fact, on Thursday afternoon, before the market closed, I sent out a Market Update to subscribers of Elliottwavetrader.net stating that "we have a potential gap down set up in place which can see us breaking below the 2013 low either tomorrow or early next week. As long as we maintain below 116.25-116.75, this is going to be my expectation." And, as we now know, the metals followed through in their downside set ups on Friday.
Most importantly, what I was told would simply not happen has finally happened this past week: gold made a lower low relative to its 2013 lows. For those of you that remember, when we came into 2014, I was looking for the metals to make lower lows and potentially complete their 3+ year correction.
Furthermore, earlier this month, I continually reiterated that I would like to see gold break its 2013 lows in October. And, it took until the last day of the month to do so. And, yes, I clearly had my doubts last weekend as to whether we were going to see these lows in October. But, as the week progressed, it showed us that this potential was a much greater reality. So, now, this certainly sets us up to complete this long term correction near the end of the year, with the potential to flow over into January of 2015. But, we are finally very close.
So, allow me to reiterate my long term downside targets, which many of you were so certain would not be seen. Ideally, this current drop should take us down towards at least the 109/111 region, with the potential to extend as low as the 105 region. Once this downside segment of the selling has completed over the next week or so, I expect us to see a corrective rally, which can take us back as high as the break down point in the 114 region. I would guestimate that this rally would top towards the end of this month, followed by a final decline to our target region of 95-105, with an ideal target of 98. Of course, I have also noted in the past that we could see an overreaction selling phase to take GLD down as deeply as the 75 region, but, based upon the relatively muted manner in which we broke the 2013 lows, I think that is becoming much less likely at this time.
Based upon the current set up, it would seem that this 3+ year correction will be ending over the next 2-3 months. That is just enough time to convince the rest of the market to give up on metals, because much of the market seems to have given up already. The question is, "will you?"
And, for those that have been "instructed by the pain" of the mining stocks, feel free to come by our StockWaves trading room at Elliottwavetrader.net, as we are now putting out charts and analysis about our perspective on where many of the most popular miners within the GDX will likely see their final lows. In fact, Larry White and I will soon begin a series on Seeking Alpha discussing several of the miners we think you may want to avoid, if your goal is to outperform the GDX ETF over the next 10 years. The strongest ones we will be highlighting on our site. And, for all of you that have been attempting to email me, if you have specific questions about metals or miners, you can post those in our trading room at elliottwavetrader.net for me or any of my analysts to respond.
Good luck to all, and try to persevere during this difficult time. We are getting much closer to the end of the "pain," and hopefully, you will have learned a lesson. And, keep in mind another brilliant Franklin quote: "So convenient a thing is it is to be a reasonable creature, since it enables one to find or to make a reason for everything one has a mind to do."
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