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9/17/2008

Question:

Does your view of a falling gold price still hold if we start to see a large increase in US bank failures?

Answer:

First and foremost, please understand the scenarios I present in my updates, on ANY market, are never "my opinion," but the result of a comprehensive process that begins with logical NEoWave RULES and concepts. From the application of those rules I get (or don't get) a resulting wave count that is an assessment of the PAST, NOT the future. Under wave theory, each pattern has a specific shape, a specific number of wave segments and relationships. Therefore, once a wave count is placed on a chart (which obeys all rules), the theory ITSELF (at least under NEoWave) provides a specific price/time FORECAST of what MUST occur in the future to confirm labeling. It is not MY forecast, it is WAVE theory's forecast. I do the historical assessment, then the missing part of structure provides the forecast. When I talk about expected price action, it is simply a statement of "the facts" as wave theory requires, not my opinion.

Addressing the first part of your question, wave structure tells me Gold will be going down for 4-6 years. That perspective will not change based on any current or expected news events, but will only change if price action behaves in a manner inconsistent with current labeling. My opinion about bank failures, whether they will or will not increase, is disconnected from what wave structure implies for Gold. In your question you are making two, unconfirmed assumptions (that bank failures will increase, which may or may not occur, and that such failures somehow, automatically cause Gold to increase in value, which may or may not be true). Gold peaked above $1000 earlier this year, well before the number of bank failures began to increase. As the number of bank failures increased, the price of Gold dropped as much as $300 off its high. So clearly Gold is not showing much of a connection between its price and rising bank failures. It is not reacting to current news, it is reacting to a future, expected reality which will not be obvious for many years.

A reasonable question at this point might be, then "How do I make my fundamental forecasts?" They are NOT based on a linear extrapolation of current news and information, but are my GUESS of what must change to make the implications of wave structure come true. For example, NEoWave "tells us" Gold began a bear market at the high in 2008 that will last 4-6 years eventually dropping below $500. Based on that information, I then speculate on what fundamental events might unfold to create that reality. Typically the best way to forecast fundamentals is to identify what justified the past. Let me explain. Fundamentals best describe a market's behavior into its highest or lowest point. As Gold was topping early this year, inflation and high international demand were universally trumpeted as the causes. If Gold is going to decline from this year's high for the next 4-6 years and drop below $500 (which wave structure requires), then the "opposite" of inflation (deflation) and decreasing demand (i.e., a slowing international economy) are likely to be the fundamental realities near the low 4-6 years from now. By taking a contrary fundamental perspective, in the early stages of Gold's bear market, we can anticipate the likely future environment that will allow Gold to drop more than $500 over the next 4-6 years. We can also use that new, contrary perspective to plan our financial dealings and investments for the next 4-6 years.

In conclusion, any time a market is at an extreme, it is difficult to believe the future that wave structure implies. For example, I've been bearish on the U.S. stock market since late 2007. Wave structure confirmed the Bull Market was OVER in early January of 2008. During that whole period, completely contrary to news events of the time, I warned customers of drastic changes coming, that the economy would get much worse over the next 4 years, that the country was headed for very difficult times, that real estate was going to decline sharply, that our financial institutions were in grave danger, etc. All of that was simply based on observing what occurred into the peak of 2007, when everything was great and business was going fine, then taking the opposite of that environment. That polar-opposite perspective, in late 2007, was very difficult for most to believe, but it is now coming true.