How to Get a Firm Handle on Gold's Ups and Downs
Watch the yellow metal's price pattern to anticipate key junctures
By Elliott Wave International[Editor's Note: The text version of the story is below.]
*********Hardly anyone likes gold today.
In the closing days of November, the Daily Sentiment Index (trade-futures.com) registered a ten-day average of just 9.1% gold bulls. That was only the third time in the sentiment gauge's 30-year history that such a low bullish reading was recorded.
This headlines captures the negativity toward gold (gold-eagle.com, Nov. 16):
Gold Price Forecast: Bearish Pattern Calls for Caution
Indeed, this happened with gold a year ago. Last December, large speculators such as hedge funds were so unenthusiastic about gold's bullish prospects that they held their smallest net-long position in 12½ years.
Let's go back to our December 2015 Elliott Wave Financial Forecast, which showed this chart and said:
Gold prices are in the late stages of an ending diagonal, which, when complete, will finish a five-wave decline from the September 2011 peak at $1921.50. ... Over the past week pessimism has grown more intense, which is consistent with an impending rally, the same message conveyed by the completion of a diagonal pattern.
By then, sentiment had turned decidedly bullish. Here are a couple of headlines:
- [Legendary Investor] Warns "Gold Will Go Higher Than Most People Can Imagine" (Zerohedge, June 27, 2016)
- Why is the gold price rising? Five forces driving the precious metal (July 15, The Telegraph)
- The Brexit effect
- Interest Rates
- U.S. Dollar
- Eurozone crisis
- China's demand
We take a different approach. We watch price patterns, which warn us of trend changes before they occur. This is from our July Financial Forecast, which said this about gold's 6-month long rally:
[The current wave up] has now satisfied its minimum expectations.
The Wave Principle is not a crystal ball. Yet, when you watch price patterns and sentiment extremes -- the true leading trend indicators -- you can often spot gold's key junctures well before other investors read about it in the news.
In fact, we believe gold may be at such a juncture right now.
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