Gold Investors' Survival Guide

Gold Investors' Survival Guide
5 Principles That Help You Stay Ahead of Price Turns

"Get gold, humanely if you can, but at all hazards -- get gold!" -- King Ferdinand of Spain

Element 79, Au, Aurum, bullion. Since its discovery in the Stone Age, humans have believed gold is favored by the gods, a portal into the cosmos -- and of course, a store of monetary value.

The metal funded the European exploration of the New World. The Gold Rush that followed helped put on the map towns and cities from Alaska to Australia, from California to Canada.

In 1975, gold futures were created. From there, opportunities to trade gold have flourished via stocks, ETFs and options.

More recently, daily trading volume in gold has been exceeded only by the U.S. Treasuries and the S&P 500.

But what drives gold prices? (Don't say "the Fed"!)

Here's the problem: There is a glaring hole in the popular understanding of what drives gold's price.

Mainstream finance believes the Federal Reserve's monetary and interest rate policies shape the trend.

That sounds like a solid explanation... except, the Fed officials themselves disagree!

Consider their own statements:

In July 2013, Fed chairman Ben Bernanke told Congress he "doesn't pretend to understand gold prices... nobody does."

Bernanke's successor Janet Yellen later concurred: "I don't think anybody has a very good model of what makes gold prices go up or down."

And at 2014 New Orleans Investment Conference, perhaps the most famous Fed chair, Alan "the Maestro" Greenspan, explained that gold's "value...is outside the policies conducted by governments." (You know, like the highly revered quasi-government institution he used to be the head of.)

Despite the uncertainty voiced by the three most recent Fed chairs, mainstream analysts today still believe the Fed's monetary policy pushes around gold's price.

Investors accept this idea as fact because they hear it endlessly. But the notion is simply not accurate. As a result, these investors find themselves on the wrong side of the trend time and time again.

Fortunately, you don't have to be one of them.

Principle #1: Forget the fallacy that "gold follows the Fed."

Consider this chart of gold prices alongside the Fed's monetary policy since 2011.

First red arrow: In 2011-2015, gold prices plunged 40%. By mainstream logic, gold's freefall must have coincided with hawkish Fed -- because higher rates make other investments besides gold more attractive, so gold prices fall. Right?

In fact, it was just the opposite. During the same period, in 2011--2015, the Fed left interest rates at their lowest level ever, 0% to .25%. But that's not all. The Fed also injected $4.5 trillion in stimulus into the markets and economy during this time via quantitative easing. According to conventional wisdom, either action should have pushed gold's price higher -- and together, MUCH higher.

Yet... gold fell over 40%!

First green arrow: Now look at December 2016 - August 2019, when gold prices moved mostly higher. That must mean the Fed was LOWERING interest rates at the time -- right?

Nope! During this time, the Fed RAISED rates eight times -- and QE had long been retired. Gold rose anyway.

Second green arrow: Next, look at November 2019 - July 2020. The Fed cut rates five times and launched QE4 in January 2020. Gold fell, right?

Ha! Despite the dovish Fed and the new QE, gold's rally resumed.

Second red arrow: Lastly, look at August 6, 2020. The Fed said it'd keep rates near 0% indefinitely and inject trillions in new stimulus money. Did gold rally?

Yeah, right! Gold prices peaked and turned down.

If anything, since 2011, the mainstream's understanding of the Fed/gold relationship has been backward.

Except, there is an even better explanation. Read on.

Principle #2: Recognize that investor psychology, not the Fed, drives gold prices.

In the words of Robert Prechter, a legendary Elliottician:

"The gold price is a function of market dynamics. No sudden external event [like a change in the Fed's policies] can change those dynamics." (Prechter's Perspective)

The good news is, you can predict gold's market dynamics with a tool called the Elliott Wave Principle.

If you're new to Elliott wave analysis, here is a summary:

• Collective psychology swings from excessive optimism to pessimism and back again.
  
  
• When investors are optimistic, they bid prices up. When they are pessimistic, they bid prices down.
  
  
• You can see these psychology swings on price charts.
  
  
• Because the swings are patterned and repetitive, the swings are also predictable.
  
  
• Once you know which of the 13 known Elliott wave patterns gold is in, you can objectively forecast what's next.

The book Elliott Wave Principle -- Key to Market Behavior shows the basic wave pattern:

"There are two modes of wave development: motive and corrective. Motive waves have a 5-wave structures. Corrective waves have a 3-wave structure (or variation thereof)."

Motive waves (labeled 1-2-3-4-5 above) trend in the same direction as the wave of one larger degree.

Corrective, countertrending waves (labeled A-B-C above) temporarily interrupt the larger trend.

As for gold, Prechter's Perspective says:

"Gold in particular follows the Wave Principle impeccably, at least in the world of fiat paper currencies. Gold is a wonderful reflector of the Wave Principle because unlike, say, pork bellies, it is traded by people around the globe, so the prime mover is the psychology of human beings at the most shared and basic level.

"If you trade gold... think about using Elliott. It will keep you on track much of the time."

Which brings us to the gold investor's survival principle #3...

Principle #3: Adopt Elliott wave analysis as your objective forecasting tool.

The reason you should do so is simple: It works.

Not always, of course. Elliott wave analysis isn't the Holy Grail. In trading or investing, there is no such thing.

Yet, once you identify a pattern in prices using the Wave Principle, you can then confidently anticipate the direction prices will most likely move next. (You'll see exactly how in the next section.)

What's more, you can make confident forecasts regardless of the news, or what the Fed does, or the so-called market fundamentals.

In fact, according to Elliott Wave Principle -- Key to Market Behavior:

"Any time an analyst claims to be using 'fundamentals' for financial forecasting, run, don't walk, to the nearest exit."

Principle #4: Trust your Elliott wave analysis.

Now for a very recent example.

Our scene begins in early May 2019 amidst the multi-year long sideways movement in gold pictured below:

At the time, mainstream analysts were at their wits' ends about gold's future. One analyst wrote:

"Wall Street, Main Street in a Quandary Over Direction of Gold Prices" (May 3, 2019 Kitco)

Elliott wave analysts, on the other hand, saw a clear price pattern.

The pattern was a contracting triangle. Here's what it looks like in a bull market (left) and in a bear market (right):

After a triangle is complete, there comes the dramatic "thrust" -- the dashed line at the right of each drawing above. The thrust is a fast move in the same direction as the previous trend.

Based on that, in gold's case in 2019, the Elliott wave forecast was clear: Up.

So, on May 31, 2019, our analysts called for a push into multi-year record territory, "the 1400.00-1500.00 area."

By June 2019, gold's multi-year triangle concluded with a wave E -- and prices indeed took first steps in a record-shattering rally to new highs.

We understand: It's hard to maintain an objective, Elliott wave viewpoint when you're listening to the mainstream financial media. After all, viewpoints based on "market fundamentals" are often so logical and eloquent!

And yet: Just as a pilot flying at night must learn to trust the instrument panel, so too savvy gold investors must learn to turn a blind eye to mainstream distractions -- and watch instead what the charts are showing.

Principle #5: Stick with the Elliott wave trend.

Back to gold in 2019.

Unlike the previous choppy, sideways action in the prior years, gold's new pattern in 2019 was sharp, strong, and unfolding in five clear waves -- up.

To Elliott wave gold investors, it meant that any corrective, 3-wave pullbacks were buying opportunities.

Our analysts helped subscribers stay on the bullish course. This is from December 27, 2019:

By February 2020, gold surged to a 6-year high.

However, in the early weeks of March 2020, gold suffered one of its worst declines in decades.

But the sell-off was an Elliott wave correction: three waves. We told subscribers that gold was set to revisit -- and likely retake -- the all-time high.

On August 6, 2020, gold soared to a new record high of $2089.

This is just one example of how, through the mainstream analysts' uncertainty and the Fed's policy shifts, Elliott waves helped gold investors stay the course.

In conclusion…

The famous 15th century explorer Christopher Columbus said, "Gold is a treasure, and he who possesses it does all he wishes to in this world and succeeds in helping souls into paradise."

The 2013 Amazon Finance bestseller Visual Guide to Elliott Wave Trading reveals the simple key to unlocking that treasure:

"If you aim to be a consistently successful trader (or investor), then you must have a defined forecasting methodology -- a simple, clear, and concise way of looking at markets to predict what's coming.

"Guessing or going on gut instinct won't work over the long run.

"If you don't have a defined methodology, then you don't have a way to know what constitutes a buy or sell signal."

Gold has proven time and again it is not driven by "market fundamentals" or the Fed. It is driven by investor psychology, which you can track -- and forecast -- on your own price charts using Elliott wave analysis. How do you start, though?

Simple. In the same Visual Guide to Elliott Wave Trading, co-author and Elliott wave forecaster Jeffrey Kennedy remarked:

"My best advice to you is to start your search by asking the question, 'Do I see a wave pattern I recognize?'

"You should look for one of the five core Elliott wave patterns: Impulse wave, ending diagonal, zigzag, flat, or triangle.

"Once you learn to identify them quickly and with confidence, these simple forms will become the basis for identifying all your trade setups."

Elliott wave patterns give you these objective signs, pointing to your desired destination -- namely, high-confidence market opportunities -- in gold and other markets.

And lots of them.

Gold: After Record Highs, What's Next?

After briefly poking above $2200, gold prices have turned lower.

Now that investors' attention has shifted to the record rally in stocks and Bitcoin, will gold keep shining?

For answers, read this excerpt from our latest, March Financial Forecast when you join Club EWI for just $2 a month.

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