Gold Bulls Charge Full Steam Ahead -- Over a ... Cliff?

ETF holdings of gold hit a new record in April, as faith in a Fed-led gold rally runs high. What happens next is likely only a matter of time.

by Nico Isaac
Updated: April 16, 2020

This chart of "total known" ETF holdings of gold comes from our April 2020 Elliott Wave Financial Forecast. It shows a new record for 2020. In fact, in the first week of April, Gold Shares ETF (GLD) took in $2.9 billion, its biggest inflow since 2009.

In Financial Forecast's words, "Optimism toward gold remains extreme."

As for what's fueling that optimism -- the short answer is STIMULUS. And not just any stimulus; the Federal Reserve's most accommodative policy campaign since the 2009 financial crisis.

Said the World Gold Council this April:

"Gold could do well as it tends to outperform during easing cycles. Additionally, multi-trillion-dollar fiscal stimulus policies to combat the economic impact of COVID-19 could prove inflationary - a development that could support gold prices in the long run."

That same stimulus-is-bullish-for-gold logic was making the mainstream rounds back in 2012. In fact, the similarities between then and now are uncanny.

• Just as now, gold prices were rising above $1700 per ounce
• Just as now, "gold holdings in exchange traded products listed around the globe hit a record high" -- July 9, 2012 Yahoo! Finance
• And -- just as now, that new rising price trend and record in ETF holdings was credited to -- you guessed it -- "Central Bank Stimulus Boosts Gold ETF's" (ibid)

Yes -- three rounds of quantitative easing since 2008, the third of which was just launched; the 2011 Operation Twist (the redeployment of $400 Billion in Fed assets) and near-zero percent interest rates. Eight years ago, ALL these factors were interpreted by almost everyone as extremely bullish for gold's uptrend.

Whether gold would surpass its 2011 peak was not a matter of if, but when. And according to one September 4, 2012 CNBC, when was very soon. It said:

"I think gold is what's going to win. One day, we're all going to wake up and the price of gold is going to be a lot higher than it is now. When I say a lot higher, I mean north of $2000."

"One day" turned into roughly 1,095 days of a three-year-long BEAR market instead, one that plunged prices to 8-year lows right alongside a mass exodus from gold ETF holdings:

Eight years ago, all fundamental signs pointed up. So how could anyone foresee the collapse that followed?

Elliott wave analysis was one way. In our September 2012 Elliott Wave Financial Forecast, our focus wasn't Fed stimulus; it was a bearish Elliott wave pattern underway on this gold chart along with extreme bullish sentiment

Wrote the September 2012 Financial Forecast:

"Gold was in a strong bull market, but it ended a year ago. The larger wave structure... favors a resumption of the decline from September 2011.

"The bottom graph shows a surge in gold bulls versus bears. At 74.7%, the bull-bear spread jumped to its highest level since November 11, 2011.

"A break of the shelf at $1527 would confirm a major top."

Gold made a low some three years later, in December 2015, a 40%-plus decline.

Now, in the April 2020 Elliott Wave Financial Forecast, our analysis reveals whether today's Elliott wave pattern on gold's price chart indicates the renewed love affair for precious metals will end happily ever after.

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