by Bob Stokes
Updated: January 19, 2017
[Editor's Note: The text version of the story is below.]
After gold reached a July 6, 2016 high of $1377.50, the precious metal took a months-long tumble.
A Nov. 29 Bloomberg headline read:
Gold Posts Worst Month Since 2013 on ‘Poisonous’ U.S. Outlook
The article noted that investors were continuing to abandon funds that were linked to the yellow metal "on expectations that the Federal Reserve will raise interest rates."
However, we do not base our forecasts on any exogenous cause factors such as interest rates.
We employ the Elliott wave model, along with other historically proven indicators, such as sentiment extremes.
On Nov. 30, our Short Term Update said:
SPDR Gold Shares are experiencing an outflow of $2.22 billion [so far in November]. These are the conditions that one expects to see at or near a low, as investors capitulate to the prevailing trend. There may still be a few more short term subdivisions that draw prices lower.
As it turned out, gold's price did slide further. By Dec. 15, the yellow metal hit a low of $1122.98.
Our Dec. 16 Short Term Update showed this chart and said (bold added):
[Gold] spot prices declined to $1122.98 yesterday and the Daily Sentiment Index (trade-futures.com) dropped to just 4% gold bulls. … Equally important is the persistence of the pessimism. A 21-day average of the DSI is now at just 9.76%, which is the lowest in the history of the data set.
Traders are more bearish on a longer-term basis now than they were in July 1999, when gold was at $252.15, nearly $900 lower! This degree of pessimism usually attends the end of a decline and the start of a rally. It’s tough to lean against a crowd, which is almost unanimously bearish gold. But that’s exactly what our analysis suggests is proper at the current juncture.
Since then, gold has staged a notable rally.
On Jan. 17, the precious metal hit a 2-month high of $1218.90 an ounce before retreating.
Our current focus is on how far this rally has to go. Gold's Elliott wave price pattern, along with sentiment measures and other indicators, are again providing us and our subscribers with valuable clues.