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Gold Market Fundamentals: Do They Really Work?

Are fundamental indicators still reliable tool for predicting the price of of gold? Is the price of gold going to continue moving up as fundamentals for currency deteriorate? Not so simple. As Avi Gilbert argues in the MaketWatch.com article “Why fundamentals are no longer relevant for gold”, that fundamentals are not as reliable as analysis of market sentiment. The market sentiment drives the market at all times, but the gold market fundamentals seem to be in control only when they match sentiment.

“In our opinion, why have fundamentals failed so miserably to control the market, and are they relevant any longer?

In order to appropriately find direction in this market, we may have to actually understand that we are asking the wrong question. In fact, one has to ask if fundamentals were ever really controlling to begin with.

Yes, I know everyone believes that “eventually,” fundamentals will control this market. But if one is truly honest in seeking an answer to this question, one has to ask themselves: If fundamentals do not control the market all the time, are they really ever in “control” of the market any of the time? Or is it simply that when the market is moving in the same direction as dictated by the fundamentals, then the fundamentals are simply a coincident factor, rather than a controlling one? This is what we refer to as the “broken clock” syndrome.

Think about it. When a child is sitting in the back seat of the car with a toy steering wheel, and the car turns in the direction the child is turning his toy, does it mean the child is controlling the car?”

If the gold market followed the existing fundamentals, it would be way into $2k territory by now. Variations of market sentiment reflected by technical indicators explain the current dip and offer insights on future behavior. Elliott Waves are designed as a tool to track market sentiment.

Gold price chart - gold market fundamentals
Variation of gold price.

“Ultimately, it means that a prudent investor must acquire the appropriate tools through which they are able to track market sentiment in the metals if they expect to be able to outperform the market. As an example, our methodology of tracking market sentiment through the use of Elliott Wave analysis directed us to exit the market once we exceeded the $1,900 level in gold back in 2011, and has us moving back into the market in 2016. While we still expect lower lows in the metals, the potential exists that many of the miners have already bottomed.”

“In order to be a well-informed and successful investor in the metals market, one must have a means by which they can track what always controls the metals-market sentiment, rather than only track what “sometimes” drives the metals market. If you understand the facetious nature of the last sentence, then you are well on your way to a successful investment career in the metals market.”