Sentiment Speaks: Gold And Silver Have A Bit More Work To Do Before They Are Ready To Shine

If you have been reading any of my articles over the last 12 years, you know that I have a major issue with the common view of how markets work, as represented through the public articles that we all read. Instead of providing us with true assessments of the market, they seem to glean their perspectives by the direction the wind is blowing at the time. And, the reasoning they proffer is never consistent or intellectually honest.

Allow me to once again explain.

Back in the 2011-2013 time frame, most were exceptionally bullish the metals complex. In fact, most were expecting an imminent rally through the $2,000 region. And, what was the fundamental reason for their expectations? Each and every person was convinced that quantitative easing and lowering the interest rate was going to cause the metals to rally.

Well, that did not exactly work out so well, did it?

At the time, I clearly did not believe the hype. In fact, back in 2011, I penned my first public article on gold, wherein I summarized my expectation at the end of the article:

"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." - Avi Gilburt, August 22, 2011

Moreover, even before topped, I responded to a question regarding how far I expect gold to correct, and my answer was the $750-$1000 region.

As we now know, gold topped within $6 of my target I set the month before, and then bottomed within $50 of the target I set years before. And, my friends, gold dropped almost $900 during a Fed easing cycle. Not only was it an interest rate easing cycle, but the Fed was even actively engaged in something called Quantitative Easing. Yes, you can read that again, as it is the truth. Gold dropped significantly during a major Fed easing cycle.

But, did the market learn anything during that time frame? Nope.

Fast forward to early 2023, and everyone was again certain that the metals were going to rally. Yet, this time, the certainly was based upon “inflation.” Yes, everyone was quite certain that inflation and rising interest rates were going to ignite a rally in the metals market. Yet, as we stand here today approaching the end of 2023, it is quite clear that everyone got it wrong yet again. Inflation clearly did not ignite the rally expected by the masses.

So, of course, does this make the media question their perspective as to what drives metals? Nope.

So, what did they do? Rather than question the underlying reasoning that had them looking in the wrong direction, they decided to come full circle back to the foolishness of 2011-2013 wherein commentators and analysts again hail the potential for a metals rally based upon rate cuts. You really cannot make this up. People really do not learn from their mistakes.

This past week, I saw multiple articles touting lowering of interest rates as the reason for the metals to rally. This is just one example of the many articles and comments I read over the last week:

“Gold surges to two-week high as metals bulls see Fed ending rate hikes”

The media and analysts frequently fail to discern the true drivers behind these movements, and tend to rely on superficial narratives.

Folks, at the end of the day, metals are not driven by rate cuts or inflation, as neither perspective has consistently proven to drive the metals in the past. Rather, they are driven by market sentiment. This perspective allowed me to be able to identify a topping structure in 2011, identify where gold will drop towards before it even topped, and then allowed me to identify when it was bottoming in real time.

On December 30, 2015, I penned the following message to those willing to listen:

"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 4 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 . . ."

I focus on market sentiment as outlined through our Fibonacci Pinball methodology of Elliott Wave analysis, all based upon Fibonacci mathematics. This is how we track the structure of market sentiment with an analysis methodology focused upon human biological responses. While some may question how mass sentiment directs market movements, I will simply say that many studies have been published over the last 30 years which explain how it occurs naturally within the limbic system within our brains.

So, while many are looking for the metals to again shine, I will be honest that I am as well. However, market sentiment gives me a bit deeper insight as to when I am going to turn uber-bullish. And, the clues I am watching are based within the silver market.

So, I am going to try to keep this rather simple. The 24.23-24.95 region still represents a bearish point of resistance which must be overcome before we see a break-down below 21.92 to provide me with a strong bullish signal.

Should we see a break-out through 24.23-24.95, with follow through over 25.43, then it will strongly suggest that we have begun a melt-up phase which will likely carry us through 2024 in the metals complex. Of course, we will see further corrective pullbacks along the way during that rally.

Should price be able to overcome that resistance in the coming weeks, then we will likely have a confirmation of a bull market phase taking hold in the metals complex, with silver likely leading the charge.

However, if silver is unable to take out cited resistance, but then breaks down below 21.92 instead, it strongly suggests that the market is pointing us towards the 18 region before it will attempt another bullish set up in 2024.

I do not care about the noise of interest rates. I do not care about the noise of inflation. I do not care about the noise of news. And, I certainly do not care about analysis which sways with the direction of the wind, all based upon nonsense. I simply care about the human biological responses as determined through Fibonacci mathematics. It provides me with a completely objective framework through which I can view market action. And, the parameters outlined above provide that framework through which I will be viewing the metals over the coming weeks.

In fact, it is this objective perspective which has led us to grow to 8000 subscribers over the last 12 years, with our almost 1000 money manager clients being our biggest fans:

“We've never spoken, but I have been a member for about 19 months and I just want to say thank you for the work you and your team does. This service has changed my entire perspective on the markets in a positive way. Some context, I am Chief Investment Officer of a boutique Wealth Management firm with approximately 1.5B in AUM, so your knowledge and expertise touches every one of our clients, and for that I am extremely thankful. Thank you again! Kind regards, John”

So, rather than being swayed by bullish “feelings,” or inflation, or interest rates, or fundamental perspectives on metals, I strongly urge you to focus on a more objective perspective over the coming weeks. This will provide us with the appropriate guidance as we look towards 2024 in the metals market.

* Please note that this article was posted on Saturday night, and the analysis is based upon the market posture at the time.