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How to Accurately Forecast Metals: A Response to Mr. Steve St. Angelo


 -- Published: Sunday, 30 October 2016 | Print  | Disqus 

By Avi Gilburt

Over the years, I have written many articles as to why the common perception of what moves metals has been wrong for so many years.   As I have noted many times, the common “fundamentals” upon which the market relied failed adherents miserably.  In fact, some have begun to actually recognize the truth in what I have been saying:

http://bullion.directory/fundamental-analysis-has-failed/

Due to their blind adherence to the fundamentals of the market, many not only did not see the high coming in 2011, but called for the market to rally every single week over the 4 years since that high was struck. And, it seems that the ire of one such “adherent” has risen over the last week to the extent that he has chosen to take umbrage with my primary analysis methodology, despite its proven accuracy during that time.  Yet, he claims that I am “incorrect” in my “approach to forecasting the value of gold and silver.”

Moreover, he suggests that I find another occupation:

“So, I would bet my bottom Silver Dollar that Avi will continue to read the tea leaves and goat entrails of the Elliott Wave Theory right up until the point the system disintegrates.  And maybe he should, because when the PHAT LADY SINGS, he will have to find some other occupation.”

First, I would like to question how one should appropriately go about critiquing whether an analysis methodology accurately forecasts the metals market.  Then, I will outline how our analysis method has been able to correctly forecast the metals market.  Lastly, I will address the new “thesis” being presented by Mr. St. Angelo in his recent article.

How to Critique Analysis

When one proffers an opinion, one usually should speak from a perspective of knowledge in order to form such opinion.   That usually means that one should study that upon which they intend to opine in significant enough depth in order to develop a certain level of expertise to provide a supportable, knowledgeable and reasonable basis from which they are able to opine. 

So, it makes me wonder the depth to which Mr. St. Angelo has studied and practiced Elliott Wave Theory for him to be able to provide us with his “expert opinion” that it is akin to “reading tea leaves and goat entrails?”  I have my suspicion about the answer to this question, but I would be glad to hear from Mr. St. Angelo about how wrong I am in my assumption.  And, no, I am not holding my breath in the expectation of hearing about his expert knowledge base in Elliott Wave theory.

How Accurate Has Our Elliott Wave Analysis Been?

Now, on to the accuracy of this method of “reading goat entrails.”  You see, back in 2011, my “reading” identified the high in gold that year within $6 of the actual high struck.  If you remember back to 2011, this market call for a top in gold was completely contrary to almost all market participants and analysts (including Mr. St. Angelo), who, at the time, were quite certain that gold was about to easily eclipse the $2,000 mark. In fact, I took much abuse and experienced quite a bit of ridicule for even suggesting that gold would top. And, even before we struck that high, I identified 3 levels to which gold may correct, depending upon the point in the cycle the market pointed towards. 

So, after hitting our expected high, and seeing the first 20% drop in gold towards my first downside target, I gave gold an opportunity to prove that it had bottomed. Based upon the market action, I noted in many articles what I would need to see to suggest that the bottom has certainly been struck, which would then suggest that we were heading to much higher levels.  However, the market invalidated the potential for such an interpretation, which then led me to look much lower towards my secondary target around the $1,000 region.  (For your information, the third potential level was in the $700 region, with all three being presented even before the market actually topped).

Back towards the end of 2015, as the market headed towards my secondary target, it become more and more clear to me that the market will not likely get all the way down to my target, which then had me buying the evening gold struck $1,045. And, if you will look back, you will recognize that this was the EXACT low we struck in gold.  Moreover, for those of you that know Doug Eberhardt of Buygoldandsilversafely.com, from whom I buy my metals, Doug even noted:

“Your timing on buying the dips is uncanny Avi! People should be aware of this if you don't mind . . .I can attest to your accuracy on actually buying both gold and silver from us as close to the bottom as one could. With gold you called it to the letter and your limit order which was placed well in advance executed perfectly. The silver limit orders were within a tight range of the lows as well.”

So, as a general summary, the analysis methodology which Mr. St. Angelo has categorized as “reading goat entrails” seems to have done rather well over the last 5 years in being able to “accurately forecast the price of gold.”  I mean, while we did “miss” the high in 2011 by $6, we did buy the exact low in 2015.  So, I believe Mr. St. Angelo was terribly mistaken in using me as his example of how analysts provided wrong forecasts in the metals complex.  In fact, I challenge him to show me someone who got it more correct than we did.  Maybe he did?

Mr. St. Angelo’s Analysis

After Mr. St. Angelo’s categorical rebuke of Elliott Wave analysis, one would assume that he has developed a method that has proven to be even more accurate over the last 5 years.   But, I am sorry to disappoint those of you reading this article, as his record over the last 5 years is abysmal, and I am being kind in my classification.  In fact, I think he could have done better using “tea leaves” and “goat entrails,” or even a dart board.  

You see, week after week, Mr. St. Angelo pointed to one fundamental reason after another as to why gold will go higher based upon his supply and demand thesis.  Yet, as we know, gold did the exact opposite and continued to drop for 4 years despite his weekly calls for the opposite to occur.  This further solidifies the perspective, of which he takes umbrage, that fundamentals have failed market participants in the metals complex.

And, the entire time, he continually complained, as he did in the subject article, that he takes issue with the “precious metals community in their lack of understanding of the true value of gold and silver.”   He has continually claimed that the market is wrong, and he is right, despite the market price moving against him for years.  This is another way of saying that Mr. St. Angelo is clearly smarter than the market.  Personally, I would rather be profitable than “smarter than the market.”

Then he presents his “argument” as to why gold rallied this year:

“At the beginning of the year, the stock market crashed 2,000 points quickly, so investors moved into gold and silver in a big way, especially the institutional investors that bought the Gold ETFs.  So, the “Knee-Jerk” reaction to most traders and investors is that market sentiment turned around and the movement of funds into gold and silver pushed up their price.”

Now, it seems that Mr. St. Angelo’s “logic” is based upon an inverted relationship between gold and the stock market.  And, if one were to follow this logic, then once the stock market bottomed and began to rally into August, gold must have done the opposite and dropped during that time?  Well, that is not exactly what has happened, is it?   Rather, gold continued higher along with the stock market, and, amazingly, even topped at the exact same time as the stock market, as both have been in corrections since that time. 

But, the facts do not seem to follow Mr. St. Angelo’s fundamental narrative?  You see, Mr. St. Angelo is no different than most other analysts.   They find a point in time to which they can point to some seeming “correlation,” and claim that this was the “cause” of the market movement they track.  And, when that “correlation” disappears, they ignore it, and move on to another issue. Unfortunately, Mr. St. Angelo has not learned that correlation is not akin to causation, nor has he focused upon providing market analysis with any form of intellectual honesty. 

Moreover, I have written many articles debunking this common market fallacy about an inverted relationship between the stock market and the metals market.  If one actually looks at the facts of market history, one would know that there are times when metals move opposite the market and there are times when metals move with the market.  The only “fact” for those that care to study history is that there is no reliable causative link between metals and the equity market.  But, Mr. St. Angelo is not burdened by such facts.

Let’s take a closer look at another perspective presented by Mr. St. Angelo. He claims that oil has been a “leading driver in the value of Gold & Silver for quite a long time.”  If that is the case, then Mr. St. Angelo should have been able to accurately forecast the price of gold over the last 5 years using this “leading indicator.”   Yet, he has only looked higher and higher while gold was dropping lower and lower.  But, what about the “leading indicator?”

Yet, Mr. St. Angelo goes on to explain that not even he will look to this “leading indicator,” because he claims that “it is beginning to disconnect.”  And, how does he know this?   Oh, yes, he provides us an analogy in the relationship between husbands and wives to bolster his perspective on the direction of gold based upon its disconnect from oil.  So, if you were reading his “analysis,” you probably had the same question running through your mind as I did: “Huh?”

What is the underlying thesis behind his perspective that oil is going to crash and “cause” a rally in gold? If you can find one, I would love to know, because it does not seem as though Mr. St. Angelo has provided one.  Rather, he provides us with supposition and speculation without any true underlying basis for his “theory.” Yet, we certainly have plenty of market history as to how well Mr. St. Angelo’s similar “theories” in the past have panned out. 

The ONLY thing that Mr. St. Angelo correctly stated in his entire article was that “Avi Gilburt will discard this article as just another complete waste of time.”

Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net (www.elliottwavetrader.net), a live Trading Room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.

 


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 -- Published: Sunday, 30 October 2016 | E-Mail  | Print  | Source: GoldSeek.com

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