The Upside Potential For Gold Miners Is Truly “Unbelievable”

Sunday, March 6, 2016

gold price forecastSo, let's take a step back and try to figure out where we now reside in the larger market perspective for metals and miners, and then discuss why I believe we are on the verge of a major bull market. 

We can then move into the smaller time frame to see if the long-term bull market is back, and, afterward, I will be glad to take any and all questions you may have.

Look Back In History

First, I would like to begin by presenting to you the following prediction made by Ralph Nelson Elliott in August of 1941:

[1941] should mark the final correction of the 13-year pattern of defeatism. This termination will also mark the beginning of a new Super cycle wave (V), comparable in many respects with the long [advance] from 1857 to 1929. Supercycle (V) is not expected to culminate until about 2012.

For those of you that do not understand this quote, Elliott was predicting the start of a 70-year bull market in the face of World War II raging around him.  Quite an amazing prediction, no?

Now, does anyone know what the price range of the Dow was in 1941 when Elliott called for a long-term bull market?

Well, the Dow ranged between 100-120 in 1941.  And, in 2015, the Dow was right around 18,000.  That represents a 150-180 multiple in the Dow in a little over the 70 years that Elliott expected back in 1941.

What History Teaches Us

I stand before you today, almost feeling like Elliott did back in 1941.  Yes, in 2016, I am seeing this correction finally completing and starting a major bull market phase for metals and miners that can last the next 50 years or more.

In fact, if you look at the attached Gold Bugs Index chart, you will see that our projections are calling for an almost ten-fold increase in this index over the next decade or so, which will likely increase to a fifty-fold increase in the index over the next 20 or so years, and well beyond that in 50 years.

Yes, I know that this is quite a bold prediction. It is even well beyond most of the perma-bull predictions you have likely been hearing for years.  However, please remember that, for me, it is all a matter of mathematics and nothing more.    

You see, to me, investing in gold is not a religion. Investing in gold is definitely not about fundamentals. And, investing in gold is not about believing in the collapse of society as we know it.  To me, investing in gold is about being on the right side of the market, whether the market is going up or whether the market is going down.  My desire is to profit on both sides of a market, as every market has periods of progression and regression.

I am truly agnostic when it comes to a “belief” in this market.  I am neither bull nor bear.  Rather, I am an investor seeking to increase my wealth, and I have used my methodology successfully to that end.

Now, let’s put this market prediction within the context of Elliott’s back in 1941.  As I noted earlier, the Dow was in the 100 region back in 1941, and then began a 70+ year rally which took it up to the 18,000 region.

When you consider the magnitude of the rally from 1941 to the present day in the Dow, I don't think it is unreasonable to expect this Gold Bugs Index, which is now at the same point the Dow was in 1941, to strike our target in the 15,000 region 50 years from now.  

Now that we have seen the potential in the gold miners index, let's take a quick look at gold.  Many speak of $2,000 gold, and others may even allude to $5,000 gold. 

But, what if I told you that the methodology that called the top in 2011 and the bottom region we recently struck before we topped in 2011 foretells a gold price in excess of $25,000 within 50 years? 

Well, that is what our Fibonacci Pinball methodology to apply Elliott Wave analysis is suggesting.  And this is actually being conservative.  I won’t even tell you the levels which I really think are possible, as you will not likely believe me.

And, as for silver, well, this may surprise you, but the calculations point to silver at the $1,000 region within 50 years.  Now, while you are digesting those numbers, let's take a look at what it will take to confirm the bull market is back in gear. 

How We Confirm The Bottom

From an Elliott Wave perspective, we look for several qualifications to determine that a long-term correction has completed, and a bull market has resumed.

First, we need to see the decline complete a full 5-wave structure for the c-wave of the correction.

Second, we need to see this corrective structure complete into a target region, as calculated via Fibonacci mathematics.

Third, we need to see a 5-wave rally off the bottoming region low.

Fourth, after the 5-wave rally has completed, we need to see a corrective 3-wave pullback into a target region, as calculated by Fibonacci mathematics.

Fifth, to place us very strongly back into the bull market, the market must then rally over the high of the initial 5-wave structure off of the bottom.  This will suggest that the bull market has begun, at least from a high-probability perspective.

So, rather than claim that the FINAL bottom is in place, like many others have done many times over the last 4 years, let's look at the GDX to see how many of these factors have been satisfied and determine what is left to be seen to confirm that the bull market is back.

As you can see on the GDX chart, we have met the minimal expectation for a full 5 waves down to complete a c-wave in this long-term correction in the GDX.

Next, the market has struck that potential 5-wave c-wave bottom in the target region we calculated several years ago using Fibonacci mathematics.

And, from that bottoming region, the market has rallied strongly, which has made many believe that the final bottom has been struck.  Yet, we still have not completed a full 5 waves up off the lows. 

Based upon our “confirmation process,” I would suggest we have an estimated 55-60% probability that the bottom could be in.  Should we complete a 5 wave structure off the lows in the coming week or two, I would suggest that the percentage would increase to 65-75%. 

As for the smaller degree analysis, I sent out an alert to all our members at Elliottwavetrader.net, slightly modifying the support regions for a fourth wave in GLD (112.50) and silver (14.55).  Other than that, my primary count still maintains us being in a fourth wave off the recent lows, which still likely need a c-wave down to complete.   Should the market rally over recent highs made in all these charts, then we are likely already in the fifth wave higher, and the probabilities begin to shift a little higher that a long-term bottom has been struck.

Alternatively, should all support regions be broken in the coming week or two before higher highs are seen, it moves the probabilities in the direction of a lower low being seen.

Over the next several months, the market is going to tell us if the final bottom has been struck, or if one more lower low will be seen before the bull market finally returns.  But, as we stand here today, I would suggest that we have an estimated 55-60% probability that the final bottom has been struck.

I want you to understand that whether we have a confirmed bottom or not in place should not make a difference as to when long-term buyers should have moved back into this market.  The only reason a confirmed bottom makes a difference, at least to me, is for trading the market aggressively to the upside. 

You see, whether we have a confirmed bottom or not, I believe that the BUY boxes on our charts have always been a good point at which long-term investors should have moved back into this market after we got out in 2011. And, if we get another opportunity to drop down into that region, then we should be buying more.

The confirmation of a bottom being in place will change our mindset as to how we trade the market.  Once a bottom is confirmed, we can become much more aggressive in trading the upside, as well as adding to the long-term positions we purchased below. 

Moreover, for those that invest or trade with leverage, one should not be considering using leverage on the long side until a confirmed bottom is in place.  So, ultimately, the confirmation of a long-term bottom simply guides your decision-making as to whether you become aggressive with the market upside or not. 

But, what is truly important about this exercise is that once one begins to appropriately think about markets from the perspective of probabilities, one will learn that all the perpetual bottom callers have only wasted our time and focus. 

We need to approach the market not from an immature perspective of black or white, as too many have done, but from an understanding that we are dealing with a non-linear environment, which means our decision-making process must turn towards a more probabilistic approach.

This was the second half of the presentation I gave at the International Traders Expo in New York, for which I have had requests to post. 

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.