Published: Mar 18, 2016 7:23 a.m. ET Market Watch Avi Gilburt
The last four years have seen a significant correction in the metals market. Gold has corrected almost 46% from its highs, whereas silver has corrected over 70%. One cannot view the mining stocks as being anything less than absolutely decimated.
Several weeks ago, I read a column on MarketWatch, which suggested that buying gold today is like buying stocks in 2009. While it is an interesting analogy, I think it is actually underestimating the potential appreciation for gold and mining stocks within the larger-degree perspective.
As some of you who have read my analysis of the metals market before may know, I view the larger-degree pattern in the metals and mining stocks as about to begin third-wave rally. Basically, that means that I am expecting the metals to begin a multi-decade rally.
So, rather than viewing the market as being at the same position of the equity markets back in 2009, I actually view the pattern as being more analogous to where the equity market was back in 1941. Yes, you heard me right.
I would like to begin by presenting to you the following prediction made by Ralph Nelson Elliott in August of 1941:
“ should mark the final correction of the 13-year pattern of defeatism. This termination will also mark the beginning of a new Supercylce wave (V), comparable in many respects with the long [advance] from 1857 to 1929. Supercycle (V) is not expected to culminate until about 2012.”
For those of you who do not understand this quote, Elliott was predicting the start of a 70-year bull market in the face of World War II raging around him. Quite an amazing prediction, no?
Now, does anyone know what the price range of the Dow was in 1941 when Elliott called for a long-term bull market? Well, the Dow dropped to as low as the 100 region in 1941. In 2015, the Dow was right around the 18,000 region. That represents a 150-180 multiple in the Dow in a little over the 70 years that Elliott expected back in 1941.
Right now, I view the pattern in the metals and mining stocks as being analogous to the pattern Elliott saw in the equity markets back in 1941. In fact, if you look at the Gold Bugs Index HUI, -7.36% chart linked at the end of this piece, you will see that our projections are calling for an almost tenfold increase in this index over the next decade or so, which will likely increase to a fiftyfold increase in the index over the next 20 or so years, and well beyond that in 50 years. The HUI has finally struck our ideal correction target in the 100 region, in similar fashion as to the Dow striking its low region of 100 in 1941.
Yes, I know this would probably qualify as being beyond most of the perma-bull predictions you have likely been hearing for years. However, please remember that, for me, it is all a matter of mathematics and nothing more. Investing in gold is not a religion. Investing in gold is definitely not about fundamentals. And investing in gold is not about believing in the collapse of society as we know it. To me, investing in gold is about being on the right side of the market, whether the market is going up or whether the market is going down. My desire is to profit on both sides of a market, as every market has periods of progression and regression.
I am truly agnostic when it comes to a “belief” in this market. I am neither bull nor bear. Rather, I am an investor seeking to increase my wealth, and I have used my methodology successfully to that end.
Now, let’s put this market prediction within the context of Elliott’s back in 1941. As I noted earlier, the Dow was in the 100 region back in 1941, and then began a 70-plus-year rally which took it up to the 18,000 region. When you consider the magnitude of the rally from 1941 to the present day in the Dow, I don’t think it is unreasonable to expect this Gold Bugs Index, which is now at the same point the Dow was in 1941, to strike our target in the 15,000 region 50 years from now.
Now that we have seen the potential in the gold-miners index, let’s take a quick look at gold itself. Many speak of $2,000 gold, and others may even allude to $5,000 gold. But what if I told you that the methodology which allowed us to call the top of the gold market in 2011 and the bottom region we recently struck (even before we topped in 2011) foretells a gold price in excess of $25,000 within 50 years? Well, that is what our Fibonacci Pinball methodology to apply Elliott Wave analysis is suggesting. And, as for silver, well, this may surprise you, but the calculations point to silver at the $1,000 region within 50 years.
While many did not believe my expectations that gold was going to top within the $1,915 region in the fall of 2011, and then drop down to the $1,000 region from there, I believe my larger-degree expectations will likely be viewed in the same way. So, while we are looking for confirmation that this correction has ended, and the next bull market phase has begun, I would highly suggest investors take a more serious look at this sector.