50-Year Gold Price Projection

Several weeks ago, I had the honor to present at the Prospectors and Developers Association of Canada (PDAC) annual convention.  Since then, I have had many requests to publish my presentation – so here it is:

I want everyone to close your eyes as I am going to take you all back in time.  Imagine we have transported ourselves to just before the turn of the millennium.  Bill Clinton was President of the United States, the Dow Jones Average was around 11,000, the S&P500 was around 1400,  . . . . and gold was at $250 an ounce.

Now, suppose someone walks up to you and tells you that gold will be worth almost 8 times the current value in a little over a decade.  What would think?  Well, most individuals at the time would have thought that person to be less then credible with such an outrageous market call.  Think about it . . . an asset being expected to multiply by eightfold within a decade?

Well, now that we have the benefit of market history behind us, we clearly know that gold went from $250 an ounce to just over $1,900 an ounce in twelve years.

So, let’s try this again.  Let’s transport ourselves back just a few years to the middle of 2011. The United States makes history with its first African American president residing in the White House, the S&P500 was around 1200-1300, and gold was no longer at $250 an ounce, but, rather, it was rising parabolically and heading over $1,900 an ounce.

For those that remember that period of time well, there were some days that saw price appreciation over $50 an ounce per day.  The significant consensus of pundits at the time emphatically believed that gold was going to imminently exceed $2,000 per ounce.

Now, suppose someone walked up to you then and stated that the price of gold would be cut in half within 4 years?  What would you think?  Well, most individuals at the time would have thought them to be less than credible with such an outrageous market call.  It would be no different than the person suggesting that gold would go from $250 - $1900 within a little over a decade.

Well, in August 2011, I was that person.  In fact, in my first gold article on Seeking Alpha, I warned investors:

“Since we are most probably in the final stages of this parabolic fifth wave ‘blow-off-top,’ I would seriously consider anything approaching the $1,915 level to be a potential target for a top at this time.”

At the time I wrote the article, everyone was so intoxicated with euphoric expectations of imminently eclipsing the $2,000 mark that they failed to see the impending top.  Needless to say, my article calling for a top was not universally accepted. Yes, most individuals at the time thought me to be less than credible with such a seemingly outrageous market call. 

Well, as we now know, gold topped in September of 2011 – a month after I wrote the article - at just under $1,921 – which was within $6 dollars of my target.  We then began this multi-year correction within which we now find ourselves.

Many are probably wondering how I came up with such an accurate target for a top to a market that was rising parabolically.  My answer is that the topping target was calculated using a 200 year Elliott Wave and Fibonacci mathematics study.  To make this market call even more prescient, before we even topped, I identified the downside targets for gold within the correction I expected.  I was looking for gold to drop from the 1900 region, down to a minimum of $1,400 an ounce, but, more likely, the 700-1000 region.  And, yes, I made this prediction even before gold topped within the heart of a parabolic rally.  It was akin to someone making a prediction today that within 4 years, the S&P500, which is now at 2100, will trade at 1100. 

So far, the lowest level we have seen in gold has been just over$1100, but I don’t think we have yet seen the lows to this multiyear correction.

Over the last three years, many have presented quite strong fundamental arguments that various factors would certainly cause the metals to immediately skyrocket to new heights.  They have pointed to increasing demand for metals in countries such as Russia, China and India.

They have pointed to quantitative easing as being a clear factor to cause the metals to head to new highs.  Some have even pointed to the conflict in Ukraine and the Middle East as strong reasons that metals should head to new highs.

What do they all have in common?  Yes, all these “reasons” have failed to have the effect upon gold that everyone was so confident they would.  In fact, a few months ago, I saw the following comment to someone else’s article that was touting the bullish side of the market based upon these same old “factors:”

“You know something? Your article is so well written, so "clean", and so logically constructed, that it can only be WRONG. Each time I've trusted in this kind of speech, I've lost money.”

Yes, those that have touted all these reasons as to why the metals MUST rally have done a disservice to market participants that followed their advice. 

Pundits have presented a myriad of reasons to why metals should be heading to new highs, but the metals have not been listening.  They have continually been dropping despite all these good reasons for them to be doing the contrary.  But, what most people don’t understand is that markets are not driven by logic or reason.  Rather, markets are driven by sentiment and emotion. 

Think about it . . . how many of you have tried to reason with someone being very emotional . . . . how far did that get you?  How many of you have tried to reason with your wives while they have been emotional?   How did that work for you?  Did you get the reaction you expected from your position of logic?  

It is akin to the experience of those that have expected “reasons” and “logic” to move this market for the last 3 years.  And, it has been especially painful to silver investors, who have lost 70% of their value from the 2011 high.

Allow me to provide you with a real life example of how sentiment will win out over reason time and again. Right after QE-Infinity was announced, I suggested to all those who read my analysis to ignore this announcement, and to focus on sentiment, as the sentiment analysis suggested that the market was about to crash in the face of this new round of QE.  I cannot explain to you the abuse I took for making such a “ridiculous” suggestion. Again, most individuals at the time thought me to be less than credible with such an outrageous market call. 

If you think back to when QE-Infinity was announced, everyone not only thought, but was 1000% sure, that the metals were about to go parabolic.

But, even before the Fed announced QE-Infinity, I made the bold call that, irrespective of what the Fed did, silver will turn back down from the $34.40 level in the futures contract. And, yes, this was based upon my analysis of market sentiment through the use of Elliott Wave patterns and Fibonacci mathematics.

Well, silver went to $34.49 (nine cents over my target), and then turned down and has not looked back since.  I believe we have seen silver drop $20 since that market call.  For those counting, that means silver lost 60% of its value since that topping call in the face of QE.

So, I hope it is very clear to all those hearing my voice today that the metals were not positively impacted by QE, despite the commonly pervasive “group-think” to the contrary.  In fact, the common understanding of what moves the metals should have been shaken to its core at that reaction.  

But, does anyone really discuss this?  No.  It is simply swept under the rug, and no one has come up with any good explanation for it other than it must be “manipulation,” because these pundits certainly could not have been wrong. 

As I have been saying for years, it is not news or some exogenous event that will determine the trend for the metals.  Rather, it is the internal sentiment of the market participants that determines the direction of the main trend, which is unaffected by exogenous events. 

While a news item may trigger a move for which the market is set up within that trend or pattern, it will not change the trend, and the trend was pointing down in silver, no matter what the news was going to be.  This should now be abundantly clear in the silver market for all those honest enough to recognize it. 

So, of late, I am simply astounded by what I read as “analysis” in the metals world.   In fact, I have even seen half a dozen “analysts” proudly note that “all of the fundamentals that supported the precious metals trade on the long side in 2011 are still there.” I almost gagged when I read that, and really could not believe that someone actually had the gall to make such a comment after silver has lost 70% of its value from the highs. 

Nothing evidences the utter failure of “fundamental analysis” in the silver market more than this.   Anyone following such an analyst should be incredibly angry at the continued utterance of such drivel in light of a 70% loss in value. 

And, now, when the metals move into a short term counter-trend rally, these pundits dust off the same old stories, such that we are heading into the Indian wedding season, demand in China is strong, etc.  

The bigger question is if, you, as an investor, will be foolish enough to continue to believe these supposedly “fundamental” perspectives in the metals, despite their clear lack of efficacy over the last three years?    It is about time that all of you that have been severely burned by “fundamentalists” in the silver market “get up now, and go to the window, open it, stick your head out and yell ‘I’m mad as hell, and I’m not gonna take this anymore.’”   Or, you can at least post it as a comment to any articles that you see spewing such flawed perspectives.

So, how does one explain this incredible difference in public expectations after this QE announcement, and how the metals actually “reacted?”

To answer this question, please allow me to quote R.N. Elliott from the 1940’s:

“The causes of these cyclical changes seem clearly to have their origin in the immutable natural law that governs all things, including the various moods of human behavior. Causes, therefore, tend to become relatively unimportant in the long term progress of the cycle.  This fundamental law cannot be subverted or set aside by statutes or restrictions.  Current news and political developments are of only incidental importance, soon forgotten; their presumed influence on market trends is not as weighty as is commonly believed.” 

For those that still question how well Elliott Wave can really predict market direction relative to all other methodologies, allow me to present you with 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 Supercylce 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?

Let’s come back to the year 2015. Now, someone stands before you and tells you that gold will be worth almost ten times the current value within a decade.  What would you think? 

Well, most individuals would probably think that person to be less then credible with such an outrageous market call.  Think about it . . . an asset being expected to multiply by almost ten-fold within a decade? Well, that is what I am standing before you and claiming.

After more than three years of this corrective market action, I am sure those bullishly inclined are worn to the nub. I am sure you have completely run out of patience.  I would not be surprised if you have even yelled at your charts, your screen, or your investment account at one time or another due to the market action in the metals over the last 3 years.

But, allow me to provide at least some comforting words in telling you that this is completely normal.  The job of this corrective decline over the last 3 years is to frustrate you.  The job of this corrective decline is to make you want to give up on metals.  The job of this corrective decline is to ultimately shake you out of the market. 

As we are getting closer and closer to the end of the insanity, I implore you to stay the course, even though there is likely still more pain to come for the metals perma-bulls. Now is not the time to give up as we approach the end.

I stand before you today, almost feeling like Elliott did back in 1941.  Yes, in 2015, I am seeing this correction finally completing and starting a major bull market phase that can last the next 50 years.

So, while many that have read my analysis over the last 3 years have viewed me as being the staunchest of bears in the metals world, I am now switching sides and moving strongly into the bull camp, especially after we see the next and final decline which should take place over the next half a year.

In fact, if you look at the Gold Bugs Index chart I have on the screen now, 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, and 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. 

Now, let’s put this market prediction within the context of Elliott’s back in 1941.  At that time, the Dow Jones Industrial Average was around 100.  Yes, you heard me right.  100.   And, 70 years later, we are at a multiple of more than 180 times that baseline.

Our base line in the Gold Bugs Index that I am seeing will likely be in the 100-125 region when it finally bottoms. So, based upon this relative perspective, does it seem so unreasonable to foresee this index as high as 15,000 within 50 years?

When the market was setting up to top in 2011, I was clearly alone in that expectation. At the time, I was even looking for the market to be cut in half, and, yes, I was DEFINITELY quite alone in that expectation.

Now, in 2015, I will begin looking up – especially after we strike the lower lows I still expect.  And, I wonder if I will be standing alone again.  But, with the upside truly no different than the impending major bull market that Elliott foresaw in 1941, I would hope that some of you will be joining me for this ride.   Yes, my friends and fellow investors, we are now on the cusp of the next major bull market in the investing world.

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Courtesy of ElliottWaveTrader.net