Gold Ends 6-Month-Long Losing Streak... for Now?

But why did gold sell off, in the first place? Let’s look at one reason rarely discussed.

by Nico Isaac
Updated: August 30, 2018

For many gold bulls, the memories of January 2018 are still painfully fresh on the mind.

At the time, gold had just wrapped up a 13.5% annual gain for 2017, its strongest yearly performance since 2010. Gold prices stood at their highest level in 17 months -- and, according to many mainstream experts, everything was coming up gold. Said the World Gold Council on January 17,

"We've outperformed all major asset classes other than stocks. Gold has rarely been more important to own." (Business Day)

Echoed a January 4 The Street, "Gold bugs are minting money right now."

For many, the future of gold prices looked like this chart below:

Three main factors fueled the bullish optimism: a fallling U.S. dollar, weakening U.S. stocks, and escalating geopolitical tensions. A sustained, fundamentally driven gold rally was in the cards:

• "Gold could hit levels last seen in 2013 if the dollar extends its slide and equity markets reverse. Bullion at $1400 an ounce is 'achievable' in the next two months." (Jan. 24 Bloomberg)
• "Gold could break above $1500 this year for the first time since its 2013 crash with the risk of a drop in surging equities and political instability boosting its appeal as a safe haven investment." (Jan. 25 Reuters)

So, what went wrong?

Fundamentally, not much. The greenback continued its slide into mid-April. The DJIA gave up 3000-plus points before turning up in late March. And the fire of geopolitical tensions continued to simmer, stoking fears of "anything from a relatively mild recession to something on the scale of the 2008 financial crisis" (CNBC, March 19).

Check, check and check -- and yet, gold prices got walloped! On January 24, gold peaked at $1334 an ounce and erased their entire 2017 gains in less than six months.

From a purely fundamental perspective, this makes little sense. So, let's take another perspective.

In our experience, gold prices are not driven by other markets, politics or news. They are fueled by investor psychology, which unfolds as Elliott wave patterns directly on a market's price chart. On January 22, our Metals Pro Service identified a bearish Elliott wave set-up on gold's weekly price chart and warned of a powerful downturn ahead.

Here's the analysis and chart our Metals Pro Service editor, Tom Denham, published on January 22:

"The rebound from the 2015 low may push higher, but a multi-year top should be near."

The next chart captures the powerful sell-off that followed -- the same one that defied fundamental logic:

Today, you won't hear the same bullish opinions as you heard back in January. When prices fall as long and hard as gold has, few believers are left standing. And yet, it's moments like these when you need the objective insight of Elliott wave analysis more than ever...

...because soon, gold may again surprise the majority -- this time, in the opposite direction.

Elliott wave analysis is far from fool proof. Yet, the objective, forward-looking insights inside our Metals Pro Service allow subscribers to track emerging shifts in gold's market psychology before you read about it in the news.