by Alexandra Lienhard
Updated: May 05, 2017
Tom Denham, the editor of our Metals Pro Service, tells you why looking at the U.S. dollar, interest rates and politics are the wrong tools when trying to forecast the price action in gold. Here's what's a better indicator.
Alexandra Lienhard: Today on ElliottWaveTV, I'm talking with Tom Denham, Elliott Wave International's Senior Metals Analyst, and editor of EWI's Metals Pro Service. Hi Tom, it's nice to see you.
Tom Denham: Hi Alex, good to be with you.
AL: So gold recently hit a three week low, and while some are tying this to the US dollar, interest rates, politics, et cetera, Tom, do these factor into your analysis. And further, is your long term bullish view of gold still in play?
TD: Well, I will admit that I look at the US dollar, and I look at interest rates, and I listen to the discussions about politics on a daily basis. But I've learned to ignore them. You can prove that gold and, for instance, the US dollar, are in a great inverse correlation by looking at a monthly chart. Because on a monthly chart looking over years of time, you'll see gold going up while the dollar is basically going down. And then when gold is going down, you'll see the US dollar going up. However if you look closely, for instance, if you looked at a daily chart right now, you'd find that both the US dollar and gold are going down at the same time. Well, they're not supposed to go in the same direction. They're supposed to go in opposite directions. Seeing that as many times as I have over the years, I just ignore the US dollar, because it is not a forecasting tool. And I can't establish a trend for gold by looking at the dollar, and the same thing about interest rates. Very curiously, if we look at a monthly chart over years of time, interest rates have basically gone down, while gold has gone both up and down. But if you look at a daily chart, they've gone in a correlation, where interest rates have gone down and the gold has gone up. And then gold has gone down, and interest rates have gone up. So that's a long winded response to say, I look at it, but it's not helpful. Mostly I want to talk about it, because people fake themselves out by giving too much attention to these other markets. And I'm just telling you, as somebody who's been doing this for years now, you will hurt yourself by trying to forecast gold by either interest rates or the dollar. And in politics, (SIGHS) you can claim anything you want at any time, and I just don't see it. We give excuses for why things happen and they sound good at the time, but if we actually look at them on a consistent basis and really nail it down, it doesn't work. So you want to know about my long term view of gold. Yes, I still think that gold is going to make higher highs before it makes lower lows on the scale of, say, a weekly chart. I don't have that confidence about silver any more. I think silver is going to make a lower low on the weekly chart. It's not confirmed yet, but it's really looking like that. But gold is much higher on the chart than silver is, and I think there's room for silver to make a new low and gold to make a higher low.
AL: Now you mentioned silver. Looking at that, is there anything in a mid-ratio or the gold-silver ratio that would suggest that this underperformance in silver is nearing an end?
TD: No, the ratio is in a rising trend right now. That means that gold is stronger than silver, which basically means that silver is falling much faster than gold is falling. But it's not near anything that looks like an inflection point, and so I don't see the ratio is offering any value to us at this time.
AL: Now let's take a look at copper. You successfully called the bottom of the range in copper, and looking ahead, more chop? Or will 2017 see copper trend turn from a trading market to a trending market at some point?
TD: Well you know, if we'd had this interview on-- what's today, Thursday. If we'd interviewed two days ago, I'd have looked like a genius because copper was up so strong. But copper fell hard yesterday, and now that bottom of the range is looking like it may be challenged. Well, that's life in a corrective phase. The big picture view that I've had for copper is that it is in a correction, and I've been seeing it as within a triangle. And sure enough, it's acting like it's in a triangle. It's up-strong and then it's down-strong, and you know, at the end of the week, we're about where we were at the end of last week. And I think that kind of performance is going to continue for a while. I think this corrective phase is going to chop people up and down, and it's not ready to stop.
AL: And Tom, just as silver has not followed the trajectory of gold, aluminum has not been following the path of copper. So what's going on in Ali?
TD: Well, I want to say to you, if you want to find something that is following the model of copper, which is chopping up and chopping down, you can look at zinc or lead. Both of them are performing like copper. They're down for a while, they're up for a while, they're down. Same story. Aluminum seems to be on another trajectory, and I don't know if that's because there's problems with the mines, or increasing demand. That's not my purview to know the fundamentals, but we certainly are in a clear pattern of higher highs with aluminum. And there's a little bit of weakness on a day by day basis, but on the weekly and monthly charts, aluminum is just, it's singing a different song. And it's a very positive one.
AL: Well Tom, thanks as always for taking a couple of minutes to offer these insights.
TD: All right. Thank you, Alex.