Sentiment For Gold Controls Price; Fundamentals Will Follow

Wednesday, June 29, 2016

The evidence is mounting.  More and more market participants have begun to recognize the reality of the market.  And, that reality is that fundamentals have not, and will not lead or control the price of gold.

“Fundamental Analysis Is Futile”

At the start of the year, I read an article which evidenced some rare intellectual honesty in the gold market by stating that “using fundamental analysis is futile, as a great many precious metals bulls will attest.”  Yet, amazingly, the analyst then progressed into a treatise of fundamental analysis which lead to his prognostication for the price of gold.  A head scratcher indeed. 

Even GATA recently noted that “[n]o amount of quantitative easing anywhere in the world has done the price of gold any good. Neither have near-zero interest rates. Nor has enormous physical demand from India and China. Nor the staggering debt in the United States. Nor a race to the bottom in many currencies.”  

So, I am simply resigned to the fact that most place their brains in neutral and provide rote regurgitation of what they have been taught about the market no matter how wrong they recognize it to be.  Sadly, they know of nothing else.

Will Fundamentals Matter?

In fact, I just read an article entitled “Fundamentals Will Matter One Day.“  Yes, if you believe in fundamentals for your analysis perspective on metals, this has been your mantra for years.  But, let’s face it.  Isn’t that the same as saying that “much of the time, they don’t matter?”  

And, if fundamentals don’t matter even part of the time, doesn’t it mean that they really don’t control market direction at all?  If they really controlled the market, then they would ALWAYS matter and not just sometimes.  If you are honest with yourself, that is the logical conclusion to which you must come. So, ultimately, when the metals move in line with your fundamental perspective then it is just coincident with the fundamental perspective and not controlled thereby. 

You see, fundamentals have meant nothing to the metals market because, as I have been trying to explain to you for over 4 years, fundamentals do not control this market.  Anyone that has attempted to trade or invest in this market based upon fundamentals has felt nothing but pain.  And, please don’t insult the rest of us with the common retort that “as long as you don’t sell, you don’t have a loss.”  If that is your perspective for holding during a 70% draw down in silver then there is truly no hope for you, so just stop reading now.

Is The Market Starting To Wisen Up?

But, over the last year, as I noted above, more and more have begun to recognize the intellectual honesty of this perspective:

I would also like to remind you of what was said by Professor Hernan Cortes Douglas, former Luksic Scholar at Harvard University, former Deputy Research Administrator at the World Bank, and former Senior Economist at the IMF, regarding those engaged in “fundamental” analysis for predictive purposes:

The historical data say that they cannot succeed; financial markets never collapse when things look bad. In fact, quite the contrary is true. Before contractions begin, macroeconomic flows always look fine. That is why the vast majority of economists always proclaim the economy to be in excellent health just before it swoons. Despite these failures, indeed despite repeating almost precisely those failures, economists have continued to pore over the same macroeconomic fundamentals for clues to the future. If the conventional macroeconomic approach is useless even in retrospect, if it cannot explain or understand an outcome when we know what it is, has it a prayer of doing so when the goal is assessing the future?

Giving Up On Fundamentals Right At The Lows

As I also noted in a recent article, almost every week for the last 5 years, analysts were proclaiming that the market was going to imminently spike higher due to the strong demand in China and India.  Yet, the metals continued lower and lower.  And, early this year, demand in China and India has dramatically fallen, yet the metals have seen their strongest rally within the last 5 years during that time.

The most interesting point about the metals market is that as market participants and analysts were giving up on fundamentals over the last 9 – 12 months (based upon the articles which began emerging around that time), the market was developing a long term bottom.  Isn’t that an interesting statement about fundamentals and market sentiment?   In fact, this even shows us that belief in fundamentals themselves is driven by market sentiment, just as the market is.

I suggest you consider long and hard about that which you believe drives this market.  When you become honest with yourself, you may be able to avoid major draw downs in the future.

Again, something to think about.

Avi Gilburt

Avi Gilburt is a widely followed Elliott Wave technical analyst and author of (; 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: You can contact Avi at