Gold Hits a 5-Year Low: How to Time the Next MAJOR Bottom

By: Elliott Wave International

"In what traders called a 'bear raid,' sellers on Monday dumped an estimated 33 tonnes of gold in just two minutes on exchanges in Shanghai and New York, sending prices on a nearly $50 downward spiral from which they never fully recovered." (Reuters, July 21)

If you live in the U.S., maybe you've noticed lately that "We Buy Gold!" signs are disappearing from sidewalks in front of pawn shops. The signs really began popping up in 2010-2011, when gold prices were climbing to their all-time high of $1900 an ounce. And even after gold tumbled from that peak in September 2011, the signs stayed up for months. Only after gold fell below $1200 an ounce in 2013 -- and price stayed flat for almost two years -- did "We Buy Gold!" signs become scarce.

Someone may chuckle at this brief record of poor timing decisions, and maybe even put it down to the general investment ineptitude of laymen. Certainly, big-name gold market players -- like central banks, for example -- with their access to privileged information and armies of PhD's would not make timing mistakes like that. Right?


Below is an excerpt from the April 2015 Elliott Wave Theorist, published monthly since 1978 by Robert Prechter, EWI's founder and president. It's a brilliant account of how central banks follow the same buying and selling impulses as the "less sophisticated" investors.

This excerpt will also give you an answer to the question,

"When will gold prices finally find a bottom?"


Central Banks and Gold
(by Robert Prechter, excerpt, April 2015 Elliott Wave Theorist)

Back when I worked at Merrill Lynch in the 1970s, I studied a number of data series useful for technical analysis. Bob Farrell had odd-lot buying and selling data going back decades, a rare treasure. Hardly anyone was buying and selling in odd lots anymore, but I wanted to see if any useful pattern emerged.

I found that the old saw that "odd-lotters are always wrong" is not quite accurate. Their behavior went like this: Most of the time when the market rose, odd-lotters would sell into the advance, and most of the time it fell, they would buy into the decline. But their behavior would change right at the turns. Suddenly on a plunge to a new low in the market, the odd-lotters would sell into the decline. It meant that their psychology had flipped from believing the market was offering bargains to believing it would go down much further. The change of opinion was so powerful that they continued selling long after the market subsequently turned up. The reverse would happen at tops: They would sell into the rise until near the end, then they would buy into the last rally. When the market turned down, they would keep buying for a long time.

After leaving Merrill, I no longer had access to these data. But the insight wasn't wasted. It seems that one institutional group behaves in the same manner as the old odd-lotters: central bankers.

...central bankers were selling their heads off at the final bottom in gold in 1999-2001. When the bull market started, they increased their sales, reaching a peak rate of selling in 2005. They continued to sell right into the deepest decline of the bull market, which occurred in 2008. Over the next two years, as gold took off again, they slackened their rate of selling and then edged toward becoming slight net buyers in 2010. Activity for 2009-2010 indicated a neutral stance for those years, as central-bank vaults sat depleted and gold continued to rise. Finally in 2011, the year of the top, they couldn't stand it anymore. They reversed course for the first time in well over a decade and started buying gold heavily, during the final rise to the highest gold prices ever. Silver reversed into a bear market in April that year. Gold finally peaked in September and crashed $400/oz. in a month. After gold's initial plunge, it rallied through most of 2012, and central banks, believing they were being offered bargains on the way to far higher prices, bought at an even faster rate. Perfectly mirroring odd-lotter behavior, they have continued to buy heavily all the way down.

In other words, in the year of the top central banks decided the long term trend was up, so they chased the market, and every down year since has looked to them like an opportunity to buy more gold at "bargain" prices.

When the bear market in gold approaches its end, central bankers will finally reverse the trend of their transactions and sell into the downtrend. When they do, it will signal the final price decline into the next major bottom.

...If you buy when central banks finally sell, you will probably succeed at investing in gold.

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This article was syndicated by Elliott Wave International and was originally published under the headline Gold Hits a 5-Year Low: How to Time the Next MAJOR Bottom. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

5 thoughts on “Gold Hits a 5-Year Low: How to Time the Next MAJOR Bottom

  1. Thanks for your market insight into the past Robert, it's nice to see information like this
    concerning market swings. It is clear to me that the market makers decide the swings in
    the market. Back in the 2000 market there was a term called pump n dump. A short term
    idea for what you say the original market makers did over the long run. Its always valuable
    to learn from the old-timers. Sometimes its good to just sit back and listen.

  2. Yes, I am fully agreed that since long, and all most forever, all Central Bankers have Traded Gold, absolutely opposite to the Basic or even long term market trend.

    I am even more surprised to find that fact that since 16-02-2001, chart of Gold indicated forthcoming very clear Bull Run, and that was too, in a so simple manner that even any beginner chart reader can also understand or predict strong bull pattern, and up side movements, which ware going to taken place, however, all central bankers acted in a reverse manner.

    All Central Bankers have appointed so called "Economists" to "Analyse Market trend, moreover i am not sure but they may have Brigade of "Technical Analysts" even though such foolish trades taken place.

    Considering above details, only three probabilities remains, Either Concerned final authority have ignored advice, obtained from all that so called Analysts as well Economists, next probability indicates that all they are totally foolish and absolutely unable to perform there designation or job, and if not so, other wise, as per last possibility, they have done that blunders knowingly or to match certain hidden agenda, may be quite possible that they were linked or supporting syndicate, and made all trades in favour of some Big Players, at the cost and consequences of respective Banks.

      1. Dear Regina,

        Sorry for inconvenience, as you experienced.

        If in 123 manner, I explain, then I want to point out that

        1- Most decisions of Central Bankers, either of buying or selling Gold are proven wrong, and they loose huge money due to such doubtful trades.

        2- Analysts and Economists, connected with such Banks can and should be questioned about their competence or applicability.

        3- very clear doubt established about respective decisions for such Gold Trades and end results thereof.


  3. You mean the same Prechter who has been calling for 1,000 (yes one thousand) on the dow for 20 years, and renewed the same call in 2010?

    Why would a reputable site like you want to be associated with something like this??

    Just....... knock it off. Thanks.

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