For those who may not remember the action we experienced in the metals market back in the summer of 2011, the market was going parabolic at the time, with some days seeing $50 increases. And the only arguments at the time were regarding how far beyond $2,000 gold was going to take us. This does not even take into account all those who have been calling for $5,000 gold for decades, with some claiming it would happen in an "overnight gap up."
Yet, on Aug. 11, 2011, I concluded my first gold article as follows:
"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."
As we now know, gold topped out at $1,921 and began a 4-year decline until it bottomed at $1,050. But, at the time I was writing about a larger degree top being struck, these are a sample of the comments I received from readers:
"With all due respect Avi, you plainly do NOT understand the gold market."
"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..."
"The problem is that TA is like driving a car by only looking in the rear view mirror... There is no foresight involved; it's all based on past performance. The future of the fundamentals is what you fail to grasp."
"There is no way you can understand what is going on in gold by doing technical analysis. Gold is driven by fundamentals."
"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."
Now, for those who believe that the only reason metals struck a top in 2011 was "manipulation," I hope you do not hate me if I suggest you remove your blinders. A number of years ago, I was asked to pen my views on the "manipulation" perspective, and you can feel free to read it here:
Getting back to the 2011 metals market, I want to note that I provided my downside targets for gold even before it topped. Yes, I know. Even though gold was still in a parabolic move higher at the time, I had the chutzpah to provide my downside target expectations.
"Based upon the Elliott Wave Principle, I would expect a very large pullback. In fact, the target for such a pullback will probably be a minimum low of $1,400, it could fall as low as $1000, or even as low as $700. It will depend upon how the decline takes form. But those are very viable targets for gold on the downside."
And the comments regarding my views were basically the same as above, so I will just note one of the more "reasonable" comments:
"There is no way to rationalize $700 gold with 50% debasement of currency expected over the next 5 years as US debt grows to $21 trillion from $14. It makes no sense to my feeble mind. I vote for $3000 vs. $1900 today. That makes sense to my mind."
As you can see, it was quite clear at the time that the "fundamentals" were keeping most metals bulls looking to the long side. And amazingly, those same fundamentals kept the metals bulls looking to the long side of the market during the entire decline.
But what was truly amazing was that as gold was approaching its long-term low struck at the end of 2015, almost the entire market turned bearish and was again "certain" that it would continue in its downside trajectory (just as strongly as they were certain we would eclipse $2,000 in 2011), with most now turning from bullish to predicting a drop below $1,000.
Well, just like everyone was uber-bullish at the highs when we expected a major top, we turned bullish when everyone turned uber-bearish. On Dec. 30, 2015, I urged investors to be moving back into the metals complex as we were looking for a long-term bottom to be struck imminently due to the significant bearishness evident in the market:
"As we move into 2016, I believe there is a greater than 80% probability that we finally see a long term bottom formed in the metals and miners and the long term bull market resumes. Those that followed our advice in 2011, and moved out of this market for the correction we expected, are now moving back into this market as we approach the long term bottom. In 2011, before gold even topped, we set our ideal target for this correction in the $700-$1,000 region in gold. We are now reaching our ideal target region, and the pattern we have developed over the last four years is just about complete. . . For those interested in my advice, I would highly suggest you start moving back into this market with your long term money . . ."
In fact, back in September 2015, when the metals mining companies were absolutely hated by the investor community, I rolled out a service on ElliottWaveTrader specifically to focus on the mining industry. We began urging our clients to buy mining stocks during the last quarter of 2015. In fact, I bought stocks such as Newmont Mining (NYSE:NEM) in the $15-17 region at the time. And NEM was my largest holding in the complex since that time.
Fast forward to 2022, and gold had been stuck in a correction since a local top was struck in August 2020. Yet, there were pockets within the market that still rallied into 2022.
An example of such outperformance in 2022 included NEM, which went on to strike higher highs in April of 2022. Yet, when NEM struck the 84-85 region, I outlined to the members of The Market Pinball Wizard that, for the first time since I bought NEM in 2015, I was selling almost my entire holdings in the company. I set a target of 82-89 when NEM was hovering in the 28 region. And when we moved into my target region, I stuck with my plan and sold my largest holding in the complex. Since that time, NEM dropped 57% off its highs.
So, back in January, I provided you with my latest assessment of the gold market, with an expectation for gold to rally to the $2,428 region in this current move off the early November low. I also noted that we can certainly even blow through that, depending upon the extensions we see in the upcoming rally, but that target was a solid one for now. Clearly, I will re-assess the target once the next bullish phase begins in earnest.
As we stand today, the setup has been developing for a "melt-up" phase in gold. I still think we can see more downside consolidation over the coming weeks before the "melt-up" phase begins. But, the more important point that I want to make is that once gold sees a sustained break out past $2,035 (June gold contract), with follow-through over $2,075, it will likely begin a fast and strong "melt-up" phase which will point it to at least the $2,200 region quite quickly. Moreover, once we confirm the next break-out move, I am also expecting us to continue higher this year towards the $2,350. But, we will have consolidation/pullback phases along the way.
Avi Gilburt is a widely followed Elliott Wave analyst and founder of ElliottWaveTrader.net, a live trading room featuring his analysis on the S&P 500, precious metals, oil & USD, plus a team of analysts covering a range of other markets. He recently founded FATRADER.com, a live forum featuring some of the top fundamental analysts online today to showcase research and elevate discussion for traders & investors interested in fundamental rather than technical analysis.