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Gold Futures Through a NEoWave Lens

Commodities / Gold and Silver 2011 Nov 05, 2011 - 02:24 AM GMT

By: Glenn_Neely

Commodities

Interview with NEoWave Founder Glenn Neely

This article is Part 2 of a 3-part interview series with Glenn Neely, founder and president of NEoWave Institute.  In these 3 interviews, conducted by blogger Bud Fox, Glenn Neely looks ahead at 3 specific trading markets (Euro, Gold, and Treasuries) through the lens of Wave structure and explores what Wave theory tells us about the next 5-10 years.


Bud:    This is Bud Fox, author of www.GreedAndMoney.com, a blog that specializes in US equity index trading.  In our last interview, “What Do Wave Charts Say About the Euro,” we discussed the euro and heard your predictions from a Wave structure perspective.  Let’s move on to gold. Gold has been a very hot topic for some time now and has been on a steady climb through the recession.  But gold tumbled 10% and silver went down 26% the week of September 18.  Do you think that was a correction in gold in a strong uptrend or do you think it’s similar to the manic peak of the NASDAQ market in the late ‘90s?  And with central banks around the world continuing to buy gold, do you think they ultimately will put a floor on gold in terms of how low it will fall?

Glenn:   Any time a market has reached the peak of its trend, the down move (as part of the new trend) is a shocker and produces disappointment. Why? Most people are long, they are losing money, but they want to believe in the bullish scenario; so, they convince themselves the big drop is simply a great buying opportunity.

Based on really long-term Wave patterns going back to the 1970s, even the 1930s and more recently to 1999’s low, the possibility exists - for the first time in my life – that Gold is concluding a 100-year bull market!

Right as gold is starting what could be a major new downtrend, the public is getting even more interested in the precious metal. Why? Because it’s cheaper. In a matter of weeks, Gold recently dropped $400 off its all-time high. So, the bulls think it’s an even better bargain than before.

Unfortunately, Wave structure implies gold is in a serious situation, long-term. September’s $400 point decline was probably the end of the rally that began in 1999. If so, September’s drop is just the start of a multi-year bear market. Gold’s next drop could place it below $1,000 in just one or two years!

Downside potential (long-term) is so significant that the only logical conclusion I can make is that a substantial, deflationary period has begun for America. That, of course, is something virtually no one is prepared for and will almost certainly cause serious problems for U.S. banks, businesses and the public at large. Wave structure implies Gold will eventually drop to $600, maybe even $500 or $400, during the next three to four years. That’s incredible and hard to imagine.

Bud:    I cannot even imagine it. Just driving around my neighborhood in the last year or two, I’ve seen a lot of stores that specialize in precious metals popping up in strip malls. Two to three years ago, you only saw TV commercials about buying gold.  But, as you know better than anyone, Wave structure is all about psychology and human behaviors. I suppose it is very possible that this is the top.

Glenn:   September’s $400 drop was the largest decline (percentage-wise) we’ve seen since late 2008 or early 2009. That suggests the entire rally from that period is now finished; that pattern appears to be part of an even larger formation dating back to 1999, which appears to be the last Wave segment of a pattern beginning in 1972. Even more amazing, 1972-to-present could be the last leg of a pattern from the 1930s!

This is very serious, and I’m extremely concerned, mostly about missing this opportunity. Gold’s volatility is so enormous that just one futures contract, with a reasonable stop, could create risk of $10,000 per contract. But, downside potential – for those who are patient - could be on the order of $100,000 per contract! Recently, my subscribers placed an order to short gold – it missed our sell-limit by $2. Right afterward, gold collapsed almost $70. That may have been our last great chance to short. I’m hoping not. Unfortunately, wave structure is not clear enough to allow me to say, with certainty, what will occur next. Either way, I’m positive gold has a lot more downside to go over the next few years.

On weekly charts, there’s not much support for gold until it drops to $1,500 or less. Even that should be only temporary.

This could be an incredible shorting opportunity, but most will be focused on buying more Gold as it declines, talking about how cheap it is and what a great deal it is at $1500, $1300, $1000. The public has heard about gold going up, nonstop, for 11 years. The idea of it now being in a new, bear market just doesn’t compute.

In addition, the currency crises around the world present “cover” for Gold’s new bear market, so most do not participate. Typically, when a market is at the end of a major trend, it seems impossible a new trend is beginning - the fundamental backdrop reinforces what has, in this case, been happening for a decade – that gold will continue to go up and up. No one can fathom that Gold’s decade-long (maybe century-long) bull market is over.

Part 3 of the Glenn Neely interview will focus on Treasuries, and will look ahead at the near and long-term Treasury market, through the lens of NEoWave theory.

Founder of NEoWave Institute, Glenn Neely is internationally regarded as the premier Wave analyst. He has devoted more than 25 years to mastering Wave theory, stock market predictions, and successful trading. In 1990, Neely published his advanced Wave analysis process in his classic book, Mastering Elliott Wave. In the following decades, Neely continued to evolve Wave theory to make it objective, practical, and consistently accurate. This evolution produced NEoWave technology – a precise, step-by-step assessment of market structure, which results in low-risk, high-profit trading and investing. See for yourself: Subscribe to NEoWave’s 2-week Trial Service. Learn more Glenn Neely and NEoWave Trading and Forecasting services at www.NEoWave.com.

© 2011 Copyright  Glenn Neely - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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