Gold Paradigm Shift, Are You Prepared?

Monday, June 20, 2016

Many analysts and investors look to supposed inverse correlations between equity markets and gold, gold and the dollar, bonds and equity markets, etc.  Yet, I have seen many intermarket analysts befuddled over the last several years, and seriously underperform the market.  And, I think we have only seen the tip of the iceberg.

Analysis Methods Will Be Turned On Their Heads

I recently read an article by an analyst who basically admitted that his intermarket analysis has not been working.  But rather than question the underlying thesis behind his intermarket analysis, it led him to the conclusion that it’s time to buy gold.   Yes, I was scratching my head too. Then he went on to question whether Soros has been fading his market calls, and that is why his intermarket analysis has not been working.   My eyes rolled at that one.

Another “analyst” claimed that his method was not working for quite some time due to market manipulation.  He then explained that when he began to “guess” when the manipulation may occur, he started trading a bit better.  But, isn’t the premise behind manipulation theories that the market is being moved in a way that one cannot expect?  So, here we have an analyst who not only admits his methodology does not work, but that he is dishonest to boot.

I have been left speechless as what is presented as “analysis” of late.  I would imagine that anyone can put out a shingle and call themselves an analyst with the advent of the internet.  But, I digress.

Paradigm Shift

Since last year, I have been preparing members at Elliottwavetrader.net for a paradigm shift.  I began warning them last year that the old “paradigms” upon which many analysts rely will begin to break down, leaving many befuddled as to what is occurring in the market.  Our first shot across the bow occurred at the end of 2014, when the dollar and gold both rallied over 10% together.  And, I think we will be seeing the further impact of this paradigm shift over the next several years.

Shift Will Affect Equities, Gold, Bonds, and Dollar

I know many of you cannot even consider the potential that the dollar can rise along with gold. But, many could not consider that the dollar was going to rise in the face of unprecedented QE, even though we were predicting a multi-year bull market about to begin in the dollar back in 2011. Many could not also conceive of the potential that gold would tank in the face of unprecedented QE, even though we outlined that the market could head down towards $1,000 in the face of such QE.  And, the dollar is significantly higher today and gold is significantly lower despite all of this unprecedented QE.

Moreover, many will not consider that gold can rise along with interest rates, as many are now viewing the advent of negative interest rates as the impetus for gold’s rise.  Furthermore, many would not consider that the equity market can rally while interest rates rise.  But, I believe we can see both of these scenarios occur as well.

Ultimately, my point is that I believe that anyone who maintains a linear perspective of non-linear markets is setting themselves up for a lot of pain in the coming years.  I believe that there is a tectonic shift occurring in financial markets, as many of the old and accepted market paradigms have begun to shift, and many others will begin to shift in the coming years.  So, rather than being caught in the resulting earthquake, which may eventually lead to a financial tsunami, I suggest you maintain an open mind when you see the market act in a way which is inconsistent with your primary thesis. And, rather than digging in your heels, and causing losses in your account, I suggest you seek out alternative methodologies that can provide you a more solid basis upon which your investment thesis may find support, rather than holding fast to the old paradigms as they begin to fail.

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Avi Gilburt

Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net (www.elliottwavetrader.net); a live Trading Room featuring his intraday market analysis (including S&P500, metals, oil, USD & VXX); interactive member-analyst forum; and detailed library of Elliott Wave education. Visit his website:https://www.elliottwavetrader.net. You can contact Avi at info@elliottwavetrader.net.