Make Kitco Your Homepage
Contributed Commentaries
  1. Kitco Metals Inc.
  2. Commentary Archive
  3. Bio

Confessions of a Gold Analyst: Will The Metals Market Continue The Insanity In 2016?

As we move into 2016, many analysts are now coming out with their 2016 predictions for the metals.  But, have they learned anything from the past 4 years?  I think not.  Rather, many continue down the same path, no matter how wrong it has been.

They say that insanity is doing the same thing over and over, but expecting a different result.  So, according to this definition, this 4+ year correction has clearly afflicted this market with a bout of insanity.  Do you want to join the insanity, or rise above it?

Let’s start with an example of a recent 2016 metals prediction I just read:

Forecasting today's volatile, high-frequency machine driven and manipulated futures markets using fundamental analysis is futile, as a great many precious metals bulls will attest. To complicate matters, an obsession with Fed policy dominates all markets. Officials at the Federal Reserve are often less than forthcoming and are just as bumbling as the Soviet bureaucrats when it comes to centrally planning our economy.

Nevertheless, beneath all of the artificial influences and all of the leveraged paper, the gears of the physical market for gold and silver still turn. We can be sure prices will reflect actual supply and demand for physical metals at some point, even if we do not know when. With that in mind, here is a look ahead to 2016...

So, please allow me to highlight the key points:

1 – The metals are manipulated
2 – Fundamentals have meant nothing
3 – The Fed controls the market

And, they then conclude the second paragraph with saying that they have no clue as to how the market works or will finally bottom.  Yet, they proceed to provide their 2016 prediction anyway. But, based upon what?  Yes, that’s right.  They base their prediction on the same fundamentals which they noted in the first paragraph have not worked for over 4 years.

I read articles like these, and I simply want to scream.  Is this what has become of the metals market? 

First, fundamentals have meant nothing because, as I have been trying to explain to you for over 4 years, fundamentals do not control this market.  Anyone that has attempted to trade or invest in this market based upon fundamentals has felt nothing but pain.

Yes, yes, I know what you are all thinking:  “Eventually, fundamentals will control.”  This is exactly what the article quoted above noted.  But, isn’t that the same as saying that “much of the time, they don’t control the market?”   In fact, did they not also note above that trying to view this market from the perspective of fundamentals is simply “futile?” 

And, if fundamentals only control sometimes, does it not mean that they really are not in control at all? So, when the metals move in line with your fundamental perspective then it is just coincident with the fundamental perspective and not controlled thereby.  If they really controlled the market, then they would ALWAYS control the market and not just sometimes.  If you are honest with yourself that is the logical conclusion to which you must come.

Second, the Fed does not control or manipulate the metals market, and especially not to the point where silver drops by 75%.  I have written about this so many times, and have explained exactly why this is the wrong perspective to take if you really want to make money in this complex.  In fact, here is my latest article on this matter:

If you want to maintain that the Fed controls the metals market, then please point us to the actual financial transactions or lines in their balance sheet that evidence a flow of funds from the Fed into the gold market.  I will tell you that you cannot because it does not exist.

Moreover, I have written articles in the past which have shown how the exact same Fed statement has seemingly caused 10-15% moves in exactly opposite directions in silver.  So, how can you take anyone seriously who says to follow the Fed for clues about the direction of the metals?  Again, it is simply just more insanity.

In addition to this “insanity,” we have seen more interviews with supposed experts assuring us again that the gold market is going to “rise substantially” in the upcoming year.  Well, you know what they say about a broken clock.  This time, they may actually be right, but only after an almost 50% drawdown in gold and 75% in silver, even though they never expected that to happen.  So, when one continually claims the market will rise each time you speak with them, eventually, if you wait long enough, they will be able to claim they are right. 

Furthermore, we have a group out there that is trying to convince you that technical analysis does not matter.  The only thing that matters is their perspective about the Fed manipulating the market.  But, has that perspective enabled any investor to appropriately identify price direction?  The answer is “no.”  And, when you present them with this question, their answer is that their purpose is not to identify price direction, but only to point out how the Fed controls the market.  In fact, they readily admit the information they provide does not provide any directional clues for the market. Then, in all honesty, what purpose do they really serve for your investment account?  

And, we wonder why this market is in disarray?  This has been complete insanity.

Folks, as an investor, your job is quite simple:  Your job is to align your investments, and that includes gold, silver and metal equity stocks, with market direction.  And, anything that is unable to assist you in that goal should be completely ignored.  As the last 4 years should have taught you, that includes ignoring fundamentals, ignoring overblown claims about Fed manipulation, and ignoring anyone who views metals as only being able to travel in one direction.  None of that has helped you for the last 4 years, and it will not help you going forward.

At some point, you must be honest with yourselves about this market and what has worked and not worked in this market.  When you are able to come to such a level of brutal honesty with yourself, then you will likely be able to turn your investment account around.  Until such time, you are probably best off if you just don’t look at your account balance, as it will be quite painful at times.  But, I can assure you that continuing to “hope” is not an investment strategy that has worked for most investors for the last 4 years.

Avi Gilburt, Esq.


Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
kitco news