Sentiment Speaks: How The Fed Affected Gold And Silver

Summary

  • Price action over the prior week.
  • Anecdotal and other sentiment indications.
  • Price pattern sentiment indications and upcoming expectations.

Price action over the prior week

The metals complex pulled back this past week, as we have been outlining in our analysis.

Anecdotal and other sentiment indications

Each time the Fed has increased rates recently, the metals have seen a strong rally. So, as we approached the next Fed pronouncement in June, many expected that a Fed rate hike would again cause a rally in metals.

But, as I so often warn investors, correlation is not the same as causation. You see, just because the Fed rate hike in the past coincided with a rally in the metals complex, it does not mean that the rate hike caused the rally. In fact, those rallies actually shocked many investors, since rate hikes were supposed to cause a drop in the price of metals. And now, the metals have dropped after the latest Fed rate hike, making investors scratch their heads even more.

However, at each of those prior rate hikes, we were expecting a rally in the metals complex, whereas at this rate hike, we were expecting a drop in the complex. How is it that a Fed rate hike can "cause" a rally sometimes in the metals and at other times a drop?

This highlights another trap I warn investors about. You see, the substance of the news or Fed action does not provide directional guidance for a market. Rather, news may act as a catalyst, but the substance of that news is not instructive regarding direction. That is why we so often see markets fall on good news or rise on bad news. And this is why some rate hikes seemingly "cause" a rally in metals and others a drop.

As another example, I can no longer count how many times I have seen analysts suggest that the stock market rallied because of a good jobs report, and only weeks later the same analysts claim that the stock market dropped because of a bad jobs report. We have all seen this happen in the market, yet almost all investors accept the explanation at the time and just move on.

We see investors doing the exact same thing regarding stocks they follow. When they see a stock rally after good news has been announced about that stock, or when they see a stock fall after bad news has been announced about that stock, they are quick to suggest how the news clearly moved that stock. Yet, when the stock rallies after bad news has been announced or falls after good news has been announced, they simply scratch their heads and move on. They have to ignore these events in order to maintain their fallacies of how markets work.

At some point in your investment career, I hope you adopt an intellectually honest perspective of markets which does not require you to ignore certain events that do not make sense within your perspective. If the facts do not fit your theory, then it is your theory that you must question, rather than ignoring the facts.

Avoiding an intellectually honest perspective will only cause losses in your account. At some point, you will have to recognize that markets and stocks often move opposite of the common expectations based upon the substance of the news. And when you do, you will likely adopt a much more sophisticated perspective of markets, which will assist you in maintaining on the correct side of the market much more often than the whipsawed news followers wearing their blinders.

As an example, I personally did not care what the news was going to be in the metals market over the last month or so. Rather, my preferred expectation was to see the VanEck Vectors Gold Miners ETF (GDX) test the 24 region and then pull back towards the 21.50-22 region. Moreover, I maintained this expectation no matter what the Fed was going to do. And yes, even though the metals market rallied each time the Fed had recently raised interest rates and the common expectation was for another increase in rates, my metals expectation remained the same, as you can see from this chart.

I can assure you that adopting a more intellectually honest perspective of how markets work will do wonders for your investment account as well as for your peace of mind. In fact, almost all the members of my trading room have reiterated the sentiment expressed by this member:

"As good as the analysts are here, the best part about joining this site is being able to ignore news. I used to eat up Zero Hedge/Markewatch/etc and it got me nowhere. I sleep like a baby now :)"

Price pattern sentiment indications and upcoming expectations

As you saw from the chart above, the market has now pulled back towards our bottoming target. And as long as the GDX does not break the May low of 20.89, we are set up for a very powerful rally in the coming months.

Housekeeping Matter

It seems that Seeking Alpha has changed the way it tags articles. So, while my articles used to be sent out as an email to those that follow the metals complex, they are now only being sent out to those that have chosen to "Follow" me. So, if you would like notification as to when my articles are published, please hit the button at the top to "Follow" me. Thank you.

Lastly, I will be on vacation for the next few weeks, so I may not be as engaged on Seeking Alpha, as any extra time I have will likely be devoted to my trading room. Also, I will be visiting Israel in the coming weeks and am considering having a get-together in Jerusalem and was wondering if anyone will be there who would be interested in joining me for a get-together on July 4th.

This article was written by

Avi Gilburt profile picture
69.87K Followers
The #1 Service For Market and Metals Direction!
Avi Gilburt is founder of ElliottWaveTrader.net, a live trading room and member forum focusing on Elliott Wave market analysis with over 6000 members and almost 1000 money manager clients. Avi emphasizes a comprehensive reading of charts and wave counts that is free of personal bias or predisposition.

Avi is an accountant and a lawyer by training. His education background includes his graduating college with dual accounting and economics majors, and he then passed all four parts of the CPA exam at once right after he graduated college. He then earned his Juris Doctorate in an advanced two and a half year program at the St. John’s School of Law in New York, where he graduated cumlaude, and in the top 5% of his class. He then went onto the NYU School of Law for his masters of law in taxation (LL.M.).

Before retiring from his legal career, Avi was a partner and National Director at a major national firm. During his legal career, he spearheaded a number of acquisition transactions worth hundreds of millions to billions of dollars in value. So, clearly, Mr. Gilburt has a detailed understanding how businesses work and are valued.

Yet, when it came to learning how to accurately analyze the financial markets, Avi had to unlearn everything he learned in economics in order to maintain on the correct side of the market the great majority of the time. In fact, once he came to the realization that economics and geopolitics fail to assist in understanding how the market works, it allowed him to view financial markets from a more accurate perspective.

For those interested in how Avi went from a successful lawyer and accountant to become the founder of Elliottwavetrader.net, his detailed story is linked here.
Since Avi began providing his analysis to the public, he has made some spectacular market calls which has earned him the reputation of being one of the best technical analysts in the world.

As an example of some of his most notable astounding market calls, in July of 2011, he called for the USD to begin a multi-year rally from the 74 region to an ideal target of 103.53. In January of 2017, the DXY struck 103.82 and began a pullback expected by Avi.

As another example of one of his astounding calls, Avi called the top in the gold market during its parabolic phase in 2011, with an ideal target of $1,915. As we all know, gold hit a high of $1,921, and pulled back for over 4 years since that time. The night that gold hit its lows in December of 2015, Avi was telling his subscribers that he was on the phone with his broker buying a large order of physical gold, while he had been accumulating individual miner stocks that month, and had just opened the EWT Miners Portfolio to begin buying individual miners stocks due to his expectation of an impending low in the complex.

One of his most shocking calls in the stock market was his call in 2015 for the S&P500 to rally from the 1800SPX region to the 2600SPX region, whereas it would coincide with a “global melt-up” in many other assets. Moreover, he was banging on the table in November of 2016 that we were about to enter the most powerful phase of the rally to 2600SPX, and he strongly noted that it did not matter who won the 2016 election in the US, despite many believing that the market would “crash” if Trump would win the election. This was indeed a testament to the accuracy of the Fibonacci Pinball method that Avi developed.


Disclosure: I am/we are long PHYSICAL METALS AND VARIOUS MINING STOCKS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I still have some hedges which I expect to stop out of on evidence of the next rally

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