Metals Fallacy Revisited, But Still Searching For A Bottom

“Gold is a safe haven.” “Gold is a hedge against market volatility.”  We have all heard these sound bites countless times. Analysts seem to dust them off every time the market declines and the metals rally concurrently. In fact, many of them were making these claims during the recent market volatility.

But, of late, we have been seeing metals and miners rallying along with the equity markets. So, do we now have to adopt the perspective that metals rally all the time?  I mean, if we have to view them as rallying as a safe haven or during market volatility, we have to also consider that they were rallying when there was no need for a safe haven or when there was no market volatility. So, it must mean that they rally all the time. Right? Well, not if we want to be intellectually honest about it. I hope you can understand this extreme example of how one must not pay heed to much of what is said about this market, as most of it is baseless and unreliable in determining market direction, and will surely get you looking the wrong way. 

As I have said time and again, if anyone has followed these “theories” or any of the other theories that have been thrown out about China, India, Russia, QE, etc. causing metals to rally, then they have likely been terribly whipsawed and left scratching their heads for years. Rather, please stay focused on the fact that metals are a pure sentiment trade, and the “news” is not going to drive their main trend.  Yes, we may have news coincide with and act as a catalyst for a small degree move in the metals, but they do not “cause” a trend move.  And, for those that want to disagree with that statement, then I suggest you begin by being honest with yourselves about the last 4 years of market action.

So, as far as sentiment is concerned, it seems the market is getting a bit frothy again. On Friday, KITCO published an article which noted that “the majority of both analyst and investors are bullish on gold prices next week.” That usually does not bode well for the market to move much higher, especially when we are in a bearish trend. Again, that is assuming we are still in the bearish trend. Did I just say that?

Well, I did. But, all it means is that I have begun to be “open” to the idea that the complex has bottomed. You see, 3 years ago, I provided downside targets for GLD (98-105), silver (12.75-14), HUI (100 region) and GDX (9.61-13.21) at which I would begin to be a buyer in this complex. And, each of the charts has recently struck my long term target zones, albeit the top of those zones. 

Now, understand that these targets were not guaranteed lows, but, rather, were minimal targets the market would attain before a bottom may be confirmed. So, at this point in time, we have struck the minimal targets I set several years ago as to where we should look for the market having bottomed. But, ideally, I still think that one more lower low can be seen and, at this point in time, I still have no confirmation that a final bottom has been struck.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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