Sentiment Speaks: Why Did Gold Go Boom?

I have to be honest that the metals complex is my favorite segment of the market to trade, especially when it is rallying. In fact, my first public articles were mostly focused on this complex.

For those that have followed me over the last decade or more that I have been writing publicly, you probably know that I was able to call the high in 2011 for gold within $6 of the high we actually struck. Moreover, I then outlined my downside expectation of around $1,000 for gold before it even topped. And, many thought of me to be crazy with that expectation, especially in light of gold being within a parabolic rally at that time. But, we all now know that gold proceeded to pullback to the $1050 region, at which time I outlined the following to those willing to listen on December 30th, 2015:

"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 . . ."

Not only did we do well with gold, but we opened a new service in the fall of 2015, which focused upon individual mining stocks. At the time, we were suggesting that Newmont Corporation (NEM) was bottoming and was a good buy in the $15 region. Since that time, I then outlined to our members that I was selling the great majority of my NEM holdings (my largest holding in my metals portfolio at the time) when we reached my ideal target of 82 - a target which I set years before. As we now know, NEM topped $4 higher at $86, and then effectively crashed to below $40, which represented more than a 50% haircut.

Then, on February 28, 2024, as NEM was hitting its low of $29.42, I again outlined my views on NEM to our members:

"we finally got that final spike down in a 5th of 5th wave that I had wanted to see, and I think it is only a matter of time now when we see the reversal, which the divergences suggest can be quite strong."

Needless to say, that day was the final low thus far in NEM, and we have rallied 35% off that low, and I think there is potentially a lot more to come.

Yet, it seems this rally has caught many by surprise. None of the drivers expected to move metals have been present, so many seem to be scratching their heads.

In fact, I noticed that Ralph Wakerly - another Seeking Alpha contributor who has followed our work for some time - posted the following:

"This just out in Barron's today as gold surges past $2300, further demonstrating that gold doesn't move on fundamentals. It's about sentiment!

"Gold Shows 'Unprecedented Strength' in Record Rally. Warning Signs Are Flashing.

Gold continues to defy gravity," Achilleas Georgolopoulos, an analyst at broker XM, wrote in a note. "It is showing unprecedented strength and manages to rally under every market scenario."

Indeed, gold has notched gains amid what could look like contradictory catalysts.

Prices marched higher in recent weeks amid expectations that the Federal Reserve will soon cut interest rates, which would put downward pressure on bond yields and the dollar, a trend typically benefiting gold. But the precious metal continued rising this week as inflationary signs in economic data put rate-cut bets under pressure-a factor that knocked stocks- as traders seemingly sought it out as an inflation hedge.

"The lower dollar could have been a factor in yesterday's move, but gold has rallied even in dollar-positive days," wrote Georgolopoulos. "This is another indication that other forces are in play such as strong buying appetite from certain sovereigns trying to diversify their dollar holdings.""

Yet, we have been expecting this rally, as it has been setting up for some time. In fact, this was one of my analysis charts presented to our members back in October of 2023:

(And, yes, for those asking, we also expected the bottom struck at the end of 2022).

But, as we read above, there are many hypotheses as to what is going on in the gold market, yet nothing has been consistent with most expectations and views of how the market operates. However, if one has been focusing on the true driver of the market - sentiment - then you would have had no surprises regarding this action, as it was fully expected.

In fact, when GLD was back down in the low $170's and gold well below $2,000 in October of 2023, I published an article outlining my expectation for gold to rally to at least the $2,428, with strong potential to extend towards the $2,700 region. And, yes, this was at a time when most were apathetic towards gold, if not downright bearish.

Then, at the end of 2023, one of my analysts published an article entitled "Gold: Ready For Blastoff." Within the comments section of the article, I warned readers that there is still a bit more consolidation likely before the blast off begins, but we are setting up for that "blast-off" move as we move into 2024. And, as we see today, gold has certainly blasted off.

This brings me to the main point behind all our articles. While most market participants are following what they erroneously believe are the drivers of gold, such as inflation, interest rates, the US Dollar, etc., they stand today in awe and quite surprised by this rally in gold, as it fits none of their narratives. Yet, as we have been following the indications provided to us by market sentiment, we were quite prepared and have expected this gold "blast-off."

As one of my clients noted this past week about our focus on sentiment as compared to the common views:

"I am deeply grateful to Avi and the entire team for the service(s) you offer. Before I retired I was Series 7 and 24 licenced and SEC registered. I consulted with Fortune 50 companies and soverign governments. In retrospect, what I thought I knew was a bit delusional and very very academic. Indeed, I took advanced asset allocation courses from Roger Ibbotson himself. I am profoundly honored by the generosity of your sharing and what can be learned. My family and I have already benefited tremendously."

The rest of 2024 should be providing more profits in the gold market, and I fully expect us to rally to $2,400+ over the coming year or two. In fact, we seem to be in the heart of the strong rally we expected for 2024. And, I expect to see much higher prices as we progress through the year. The extent to which this rally takes shape throughout 2024 will tell us if we can reach the $2,700+ region, based upon the structure of the rally, which is how we track market sentiment.

If you want to learn a bit more about how we view the market, feel free to read this 6-part introduction to EW series I wrote a number of years ago.