Oct. 26, 2014 4:18 AM ET
Summary
- Hope reigns supreme in the gold market.
- There has been too much misinformation disseminated in this market.
- Upcoming week's expectations.
As I mentioned last weekend, many analysts and investors have now turned to "hoping" that further quantitative easing will cause gold to rally. Again, they do not seem to be burdened by the facts.
In fact, one contributor on Seeking Alpha made the "astute" point in a comment to my last article that some of the QE's were good for gold and others were not. Sounds like a reasonable statement, right? Well, if one parks their brain in neutral, then maybe it sounds reasonable.
You see, if the exact same action (QE) does not cause the same result each time - but, in fact, seemingly causes opposite reactions, can we logically consider that it was the proximate cause in even some of the cases? The answer is clearly "no." Rather, the logical conclusion is that it was simply a coincident factor, and not a direct cause in any of the cases. And, this is why the metals reaction to QE3 took everyone by such surprise . . . well, other than those that follow our Elliott Wave analysis.
Yet, so many are hoping and wanting to believe that further QE will cause the metals to rally. But, hoping for a rally will never increase the size of your investment account. And, as Ben Franklin said, "[h]e that lives on hope will die fasting."
The other issue I want to discuss this week is a recent interview with Eric Sprott. During the interview, Mr. Sprott presented his latest conclusions about gold as it relates to the current Ebola issue: "An event like this could have serious negative repercussions because it changes people's behaviors. If people worried about the security of bank deposits start pulling their money out, they would logically want to shift to gold and silver."
When I read this, all that struck me was that Mr. Sprott has run out of reasons why metals will rally (because they have all failed miserably over the last 3+ years) and had to stretch for yet another "reason." For the last 3+ years, he, Schiff, others of their ilk, have assured everyone that we can see an overnight gap up in metals of 25% or more. Yet, silver has declined more than 60% since its highs during that same period of time. And, now, Mr. Sprott is pinning his "hopes" on Ebola!?
So, someone please help me with this logical progression, as it truly escapes me. Assuming, G-d forbid, we see more cases of Ebola here in the United States, Mr. Sprott automatically assumes that this will cause a run on the banks, which will then cause gold to rise. Can someone please explain to me how a sickness will cause a run on banks? Did tuberculosis cause a run on banks?
Did AIDS cause a run on banks? Did the Bird Flu cause a run on banks? Yet, everyone that reads these statements accepts them as "logical!?" So, I am here to make sure you don't simply accept this ludicrous and overreaching perspective without actually thinking about it first. I mean, won't people be too sick to get to their bank? Yes, I know, what you are thinking, but it is just as ridiculous as Mr. Sprott's proposition.
In the same interview, he goes on to claim that "[c]risis-induced asset price weakness puts a terrible strain on the banking system and takes us back to 2008 when people realized they were better off putting money in gold and silver than propping up the banks." Really? I find this claim actually insulting. It is abundantly clear that Eric is yet another who is not burdened by the facts. Rather, he creates the facts as he sees fit to further his cause.
If one actually takes a minute to look at a chart of gold in 2008 during the financial crisis, once would see that people were clearly not better off putting money into gold, as gold lost over 30% of its value in 2008 - from its 2008 peak to its trough - during the "crisis induced asset price weakness." In fact, people would have been best off putting their money into the U.S. Dollar, which appreciated over 25% during that same time frame. But, Mr. Sprott clearly cannot present that fact, as it would destroy his entire premise for owning gold. So, rather than present the truth, he simply makes it up as he goes.
This reminds me of another of my favorite Franklin quotes: "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." So, yes, when some can't "find" a reason, they simple "make" one up. Damn the facts. Damn the truth.
The amount of unsubstantiated fear that these popular metals investors and promoters are peddling to the populace should shock your sensibilities. Personally, I am insulted by their attempts at misinformation in order to further their goals of getting you to buy gold and silver.
And, if I sound like Howard Beale from Network, then so be it. But, I, too, am as mad as hell and I am not going to take this anymore. And, neither should you. We need to hold these people accountable for their statements and call them out when they peddle misinformation, rather than blindingly accepting what they say as truth. Of course, this is even beyond the fact that they have been terribly wrong for the last 3+ years, and did not even see this correction coming.
Now, please do not get me wrong. I am a big proponent of owning metals and mining stocks for the next 10+ years, in the same way as I was a proponent of selling them back in 2011. But, I am not a proponent of telling someone to be buying during a 60% decline, while telling them "tomorrow we see a huge run." And, as many of you who read me know, I am now looking at long term buying opportunities in metals and miners. In fact, if you are a long term investor and not loading up on silver between the $13-18 region, and gold between the$ 900-1200 region, then you are making a mistake. Traders can continue to look for price improvement opportunities in these regions, as lower lows will likely still be seen.
Now, I can descend from my soap box and move onto the GLD update.
Many may not realize this, but the best traders are not in the market 100% of the time. They are not in the market 80% of the time. They are not even in the market 50% of the time.
Rather, the best traders pick and choose their trades very carefully and enter trades only when the greater probabilities are on their side. In fact, they are willing to miss a trade they suspect will occur if not all the probabilities line up in their favor.
So, when I tell you that I do not have a trade in metals before me where I can say I have a greater than 60% probability of being right, it tells me to tread cautiously and not attempt to force a leveraged trade when one really does not exist, in a high probability sense.
While I will tell you how I see the various possibilities in the market at this time, please understand that I do not possess a high degree of certainty as to the next immediate move in the metals until I see a little more price action to discern which wave degree is best represented.
For now, the cleanest perspective to me is in silver at this time. And, if I were to relate that same set up to the GLD, it would mean that we should not be seeing GLD over the 119.50 level, and setting up for a strong drop that should take out the 2013 lows. The set up does exist, but it is not the type of strong probability set up I would like to see.
However, should GLD strongly move through the 119.50 level, then it will likely be targeting the 122.50-124 region next.
So, over the next few days, I will be watching support and resistance levels very carefully to give me a clue as to the next move in the metals. But, as I have been saying for months, I am still expecting another drop in the metals whether it begins immediately, or it takes another month or two. Ideally, I have wanted to see it in October, but, unfortunately, the metals do not always do what I want them to do precisely when I want them to do it.
Lastly, I often see many questions here about GDX and GDXJ, as well as the leveraged ETF's that are used to trade the same. Since many of you have requested more detailed coverage of these products by me and my staff, I want to take a moment to announce to you the addition of Larry White to our professional staff at Elliottwavetrader.net.
Larry has been a member of our Trading Room for the last several years, during which time he has provided some incredible analysis on various mining stocks, as well as the mining ETF's. Larry will be joining Zac, Garrett and Harry on our StockWaves Team at Elliottwavetrader.net, and providing continual and detailed coverage for individual charts of the mining stocks that make up the GDX and GDXJ ETF's. By doing so, Larry can assist us in picking the best of those charts to set ourselves up to outperform the GDX and GDXJ once the next multi-year bull phase begins in the metals world as we move into 2015.
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