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Gold Investors: Who You Callin' Crazy?

A great investment lesson on how the Elliott wave model kept us ahead of the 2011 reversal of gold's bull market

by Nico Isaac
Updated: March 04, 2015

In early February 2015,  a well-known precious metals expert got the ire of many a gold bug after suggesting -- in so many words -- they might want to check into the nearest looney bin. A February 12 CNN Money article has the exact details: 

"An executive at metals retailer Kitco says 'crazies' form a substantial amount of the U.S. physical gold market: 'These investors buy the metal and it just disappears. It goes under their mattress. They want to use it when the world ends.' "

In other words: Owning gold as a disaster hedge is crazy.

I happened to recognize the name of the executive in question. And, after doing a little digging, I found the source: an August 17, 2011 article in the Huffington Post, where the same exact expert said this:

"Gold is no longer for the crazy people... As long as people are terrified that the purchasing power is going to be eroded, gold goes to $3000 an ounce."

In other words: NOT owning gold as a disaster hedge is crazy.

One person: Two completely opposing viewpoints -- now that's a little bit crazy.

The question is, why?

Well, the answer lies in what Elliott Wave International president Bob Prechter calls the "linear extrapolation" of mainstream economics, which sees a market's current trajectory continuing indefinitely -- unless some outside force intervenes to change it.

In 2011, gold prices were orbiting all-time record highs in what seemed like an unstoppable bull run. And, according to the mainstream experts, the path to gold's upside was clean and clear of any negative obstructions. Here, the following news items from the time reset the scene:

  • "Deutsche Bank Eyes $2000 Gold." (Reuters) 
  • "Five Reasons Gold's Headed for $3000. " (MSN Money)
  • "$5000 Gold Later This Decade!?" (Gold Alert) 

Linear extrapolation of gold's price trend reached the same exact conclusion as the Kitco executive: not owning gold was crazy. Yet, on September 6, 2011, gold prices peaked and embarked on a bull-ravaging sell-off to three-year lows in late 2013.

In contrast, in the days leading up to gold's very peak, our September 2011 Elliott Wave Financial Forecast used the pattern-based, Elliott wave "extrapolation" of gold and identified a completely different picture -- namely, a complete five-wave rally and bearish "throw-over":

"Gold's wave structure is consistent with a terminating rise. As this monthly chart shows, prices exceeded the upper line of the channel formed by the rally from the 1999 low in what Elliott terms a throw over. A throw over occurs at the end of a fifth wave and represents a final burst of buying."   

Flash ahead to today. Gold has been mired in a four-year long bear market, with prices still sitting 30%-plus below their 2011 high. And, some people are saying it's crazy to own gold.

Our March 2015 Elliott Wave Financial Forecast offered a unique perspective, one based on Elliott wave analysis. There, we showed you the following close-up of gold, which identifies a very familiar pattern on the daily price chart: A five-wave move down from the September 2011 peak, which increases the likelihood that a bottom of great significance may be in place:

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