SENTIMENT SPEAKS: GOLD IS HEADING TO $25,000 / SEEKING ALPHA

Sentiment Speaks: Gold Is Heading To $25,000

by: Avi Gilburt

Summary

 

- Price Action Over Prior Week.

- Anecdotal and Other Sentiment Indications.

- Price Pattern Sentiment Indications and Upcoming Expectations.
 

Price Action Over Prior Week

 

This past week, we have seen the metals continue their consolidation. There is nothing I have seen in the price structure over the prior month that is suggestive of a bearish pattern in the metals complex, so I will maintain my larger degree bullish perspective as long as the supports noted in my prior article are respected in all products cited, with silver seeing the potential for a drop to as low as 18.28.

 

Anecdotal and Other Sentiment Indications

 

Some of the most accurate market calls I have made were initially taken by market participants as completely "impossible" or "ridiculous." Back in 2011, I wrote my first market prognostication article on Seeking Alpha, in which I called for a major top in the gold market:

Can Gold Go Higher? - An Elliott Wave Perspective

The simple answer is, yes, it is possible that it can go higher. However, there are clear levels that must be watched so that investors do not get caught in a downdraft when a top is hit. . . 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.

As we now know, gold topped at $1,921, which was within $6 of my long term target, and began an initial waterfall decline. This target was calculated using a 200 year Elliott Wave and Fibonacci mathematical analysis to track market sentiment over the long term.

 

At the time of my writing this article, gold was approximately $43 from its actual top and was in a parabolic rise to this point. Almost everyone you spoke with at the time was certain that gold was going to eclipse the $2,000 mark. And, as I have noted so many times before, when everyone in the market maintains the same perspective, this is often the time when contrarians look for a turn in the market. This is simply how market sentiment works, and it has been the most consistently accurate predictor of trend changes in the metals complex that I have seen.

Now, even before we topped, I was noting two primary targets I had for the correction I was expecting. My first target region was between 140-150GLD, whereas my secondary expectation was in the 100-112 region. Again, remember that I was providing these downside targets while the market was still within a parabolic phase, with almost all market participants looking for over $2,000 gold, and without anyone even considering a top.

 

Well, the euphoric market sentiment at the time was clearly evident in some of the comments I received within the month:

Technical analyses is all well and good, but you cannot apply it to the PM sector which has been artificially manipulated and suppressed for years. 

There is no way you can understand what is going on in gold by doing technical analysis. Gold is driven by fundamentals and technical analysis comes only as a distant second in the analysis. If the Fed announces QE3 (I think they will do it but not tomorrow), gold will go up like crazy and no technical analysis can predict this. 

With all due respect Avi, you plainly do NOT understand the gold market. . . Because of these fundamentals, gold does not work very well for technical analysis, for charting. Algorithms which are indicators for other financial instruments are rather useless for gold. 

TA is useless for a sector that is so heavily rigged and manipulated by the bullion Banks Your TA is useless. You don't understand the fundamentals because you only look to the past. Gold bulls are forward thinking. The times they are a changing...

Again, this is purely typical of how sentiment works in the market, and this period of time in the gold market was no different. And, if we fast forward to the end of 2015, as I began to look for a low in the market, many became as certain that gold would break $1,000 as they were in 2011 that we would eclipse $2,000:

But, as of late, we have developed a new class within the metals market. This new group is generally bullish on this complex for the long term, but they are certain that one should not even consider buying until we see a strong capitulation with a spike down below the $1,000 level. I call them the "below-1k-dip-buyers." 

Now, I have to be honest and admit that I proudly considered myself within this class of investors not too long ago. In fact, even before the market topped within $6 of my target back in 2011, I suggested that the correction can take us down as low as the $700-$1,000 region, despite the mass disbelief at the time. But, as this "below-1k-dip-buyers" class has grown quite large, I am now questioning the wisdom of such affiliation. 

Ideally, this new class of investor makes the most sense of all. The perspective is that a final spike down below the psychological $1,000 level would make almost all the bulls throw in the towel, which would then see the final sellers move out of the market, thereby creating a lasting bottom to this 4+ year correction. Yes, this is how markets normally work . . . except when this is what a large segment of the market expects. 

And, the "below-1k-dip-buyers" class has grown quite large. In fact, if you discount the gold bulls and the gold haters, all you have left are the "below-1k-dip-buyers." Right now, I think the rarest breed of all are those willing to buy between $1,000-$1,100. And, they may actually turn out to be right.

After I wrote that in an article, I received a significant amount of email stating again that I had no clue about the gold market and that I was foolish for buying over $1,000. Some even cited my top call in 2011, noting that I was lucky and that I would not be as lucky in being to buy into the actual bottom, especially if I was buying over $1,000. They pointed to so many different analysts calling for gold to break that $1,000 region, and noted that I was wasting my money. You see, nothing really changes in the market if you know how to use market sentiment in your favor.

 

In fact, when I wrote a long term bullish article several months before this article I just cited, the most important perspective I gleaned from the comments was the uniformity of disbelief.

 

Out of over 700 comments to the article, I think I counted two, yes, only two, that actually viewed any bullish perspective as possible. Now, I probably could have discounted those two, as they could simply have been long term gold bugs who appreciate any article which calls for a parabolic rise in the price of gold. But, it was resoundingly clear that investors were uniformly in the "disbelief" camp.

 

While this was only anecdotal evidence of market sentiment, the article did reach several hundred thousand readers. So, I have to assume that most viewed this type of appreciation in the price of gold as "impossible" or "ridiculous," as many of the commenters noted.

 

Now, allow me to take you back in time and present you with the following prediction made by Ralph Nelson Elliott in August of 1941:

"[1941] should mark the final correction of the 13 year pattern of defeatism. This termination will also mark the beginning of a new Supercylce wave (V), comparable in many respects with the long [advance] from 1857 to 1929. Supercycle is not expected to culminate until about 2012."

For those of you who do not understand this quote, Elliott was predicting the start of a 70-year bull market in the face of World War II raging around him. Quite an amazing prediction, no?

 

But, at the time, market sentiment was so negative that Elliott clearly saw it as having the potential to trigger the largest bull market in equities in history, whereas market participants at the time likely viewed it as "impossible" or "ridiculous."

 

Price Pattern Sentiment Indications and Upcoming Expectations

 

Back in June of 2015, I wrote the following price prediction, which I still maintain today, despite the disbelief which I noted above by all the commenters to this prediction:

I stand before you today, almost feeling like Elliott did back in 1941. Yes, in 2015, I am seeing this correction finally completing (but at much lower levels) and starting a major bull market phase that can last the next 50 years. 

So, while many that have read my analysis over the last three years have viewed me as being the staunchest of bears in the metals world, I will be switching sides and moving strongly into the bull camp, especially after we see the next and final decline which will likely take place over the next half a year. 

In fact, if you look at the Gold Bugs Index HUI, chart linked at the bottom of this column, you will see that our projections are calling for an almost tenfold increase in this index over the next decade or so, which will likely increase to a fifty-fold increase in the index over the next 20 or so years, and well beyond that in 50 years. Ultimately, we see the HUI over 15,000. 

Yes, I know that this is quite a bold prediction. However, please remember that, for me, it is all a matter of mathematics and nothing more. 

Now, let's put this market prediction within the context of Elliott's back in 1941. At that time, the Dow Jones Industrial Average was around 100. Yes, you heard me right. 100.  

Seventy years later, we are at a multiple of more than 180 times that baseline. Our base line in the Gold Bugs Index will likely be in the 100-125 region when it finally bottoms. So, based upon this relative perspective, does it seem so unreasonable to foresee this index as high as 15,000 within 50 years?

And, as it relates to gold, this same mathematically based price projection (which is based upon the same methodology that identified the top in 2011 and the recent bottom) suggests that gold can conservatively reach the $25,000 mark. So, I await the comments of this being "impossible" and "ridiculous" to provide more certainty for this prediction (smile).