What REALLY Controls The Metals’ Movement? (Part 1)

Elliot Wave Technical Analyst & author @ Elliott Wave Trader
February 15, 2015

Part 2 of this article is HERE.
Part 3 of this article is HERE.

Caught Looking the Wrong Way

Over the last three years, many have presented quite strong fundamental arguments that various factors would certainly cause the metals to immediately skyrocket to new heights.  They have pointed to increasing demand for metals in countries such as Russia, China and India. They have pointed to quantitative easing as being a clear factor to cause the metals to head to new highs.  Some have even pointed to the conflict in the Ukraine and Middle East as a strong reason metals should head to new highs.

What do they all have in common?  Yes, all these “reasons” have failed to have the effect upon gold that everyone was so confident they would.  In fact, a few months ago, I saw the following comment to an article that was touting the bullish side of the market based upon these same old “factors:”

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.

precious metal price movementYes, those that have touted all these reason as to why the metals MUST rally have done a disservice to market participants that followed their advice.  What most people don’t understand is that markets are not driven by logic or reason.  Markets are driven by sentiment and emotion.  And, for those of you who have tried to reason with someone being very emotional, how far did it get you?  It is akin to the experience of those that have expected “reasons” to move this market for the last 3 years.  And, it has been especially painful to silver investors, who have lost 70% of their value from the 2011 high.

Allow me to provide you with a real life example of how sentiment will win out over reason time and again. Right after QE-Infinity was announced, I suggested to all those who read my analysis to ignore this announcement, and to focus on sentiment, as the sentiment analysis suggested that the market was about to crash in the face of this new round of QE.  I cannot explain to you the abuse I took for making such a “ridiculous” suggestion.

If you think back to when QE-Infinity was announced, everyone not only thought, but was 1000% sure, that the metals were about to go parabolic. But, even before the Fed announced QE-Infinity, I made the bold call that, irrespective of what the Fed did, silver will turn back down from the $34.40 level in the futures contract. And, yes, this was based upon my analysis of market sentiment through patterns and Fibonacci mathematics. Well, silver went to $34.49 (nine cents over my target), and then turned down and has not looked back since.  I believe we have seen silver drop $20 since that market call.  For those counting, that means silver lost 60% of its value since that topping call in the face of QE.

So, how does one explain this incredible difference in public expectations as to what the metals were going to do after this QE announcement and how the metals actually “reacted?”

To answer this question, please allow me to quote R.N. Elliott:

“The causes of these cyclical changes seem clearly to have their origin in the immutable natural law that governs all things, including the various moods of human behavior. Causes, therefore, tend to become relatively unimportant in the long term progress of the cycle.  This fundamental law cannot be subverted or set aside by statutes or restrictions.  Current news and political developments are of only incidental important, soon forgotten; their presumed influence on market trends is not as weighty as is commonly believed.”  

Next week we will continue with this series and delve into why fundamentals have failed to guide investors in the metals world over the last three years.


Courtesy of ElliottWaveTrader.net

Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net, a live Trading Room featuring his intraday market analysis (including emini S&P500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education. You can contact Avi at: [email protected].

In 1934 President Franklin Delano Roosevelt devalued the dollar by raising the price of gold to $35 per ounce.

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