Confessions Of A Gold Analyst: How The Metals Market Has Come Full Circle

For those that remember back to 2011, as the metals were moving up in a parabolic move, everyone was on the “bullish team.”  I heard stories from brokers about how investors were taking out home equity lines to buy gold and silver, since it was such a sure thing according to everyone in the market.  The froth in the market at the time was quite palpable.

You would be hard pressed to find anyone who was bearish of metals at the time, other than perma-bears.  In fact, in 2011, many were claiming that there was no silver left, so there was only one direction in which silver can be headed.

But back in August of 2011, I suggested to gold investors to sell their gold at $1,915, and silver investors to begin to set up a short trade on silver.  I also suggested that the gold price can drop as low as the $700-$1,000 in the up-coming correction I was expecting.

Some of the representative comments to my articles evidenced the clear froth and uber-bullishness within the market:

“There is no way to rationalize $700 gold with 50% debasement of currency expected over the next 5 years as US debt grows to $21 trillion from $14. It makes no sense to my feeble mind. I vote for $3000 vs. $1900 today. That makes sense to my mind.”

“Should You Buy Silver Now? Probably Yes. Fundamentals are too strong. With decreasing stock piles and increasing industrial usage, supply and demand will eventually overtake any and all manipulations.”

“I can't think of a more risky investment than shorting silver. A silver short is in the same class as buying a Greek bond.”

“Shorting silver is nothing but a fool’s game at this point.”

“Avi, listen to me. EW won't be right about everything. If you are wrong here, you are losing money and credibility that you will never regain. Face the facts, this is a bad bet, if you are placing it.”

So, let’s now move forward to 2015.  It is hard to now find anyone who is bullish metals other than perma-bulls.  And, many are still claiming that there is no silver left.

As I occasionally do, I have reviewed a number of other metals articles written over the last week or two.  And, while the same authors that have been bullish for the last 4 years remain quite bullish, the responses and comments to those articles have done a complete 180:

“It’s great to suggest higher US rates will create the bottom in gold…let’s face it, these past 4 years everything else that was to propel gold higher has failed from Asian demand to China as the big buyer etc, etc oh and QE was to create hyperinflation in the US and crash the US$ remember, not!”

“Same crap different day. You guys have been saying “it’s a great time to buy” for 4+ years at the 2011 highs.”

And, one of the most telling of recent comments I got to one of my own articles presents the utter desperation and sense of dejection that many of the perma-bulls are now feeling:

“Perhaps you should try walking in my shoes sometime. Do you have any idea of just how much someone who believes that Gold is money AND that Article 1 Section 10 of the Constitution should be being followed/obeyed... is in the minority in this world?? Find out how thick your skin has to be then!”

It finally seems as though the public sentiment, as evidenced by commenters to recent articles, has finally done a complete shift since the 2011 highs.  Many seem to have now moved into a state of disbelief that the metals are able to rally at all no matter what reason is placed before them.  And, as you can see from the last comment, many are likely feeling quite melancholy over their metals investments at this time. 

Sadly, what these commenters don’t recognize is that they are quite representative of the herd, and the herd’s “feelings” are always leaning in the wrong direction when we approach market turns, especially when there is a strong consensus within the herd.  Yes, the herd has now become quite bearish of the metals market.  And, in the same way that they were too bullish back in 2011, I think, at least from an anecdotal perspective, we are quite close to the point of them being too bearish in 2015, which likely means we are approaching a major market turn.

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By Avi Gilburt, Esq.
www.elliottwavetrader.net