A Thanksgiving Thought For Metals Investors Who Do Not Appreciate “Alternative” Analysis

There Is No Holy Grail

Let’s start by recognizing that there is absolutely no holy grail to investing or trading. Rather, we only deal in probabilities when working within non-linear markets. To that end, there are a multitude of methodologies that are utilized in the market to gain an edge in placing the greater probabilities on our side.  Yet, most of the market is primarily focused on fundamental analysis, whereas technical analysis is not viewed by most as a primary focus.

Fundamental Analysis For Prognostication

For the last 5 years, I have been writing publicly about my perspective on gold, silver and mining stocks.  And, those that have followed me know that my main thesis about being able to prognosticate the direction of the metals is based upon analyzing market sentiment.

I have also provided you my perspective on attempting to use fundamental analysis in the metals market, and I have cited many reasons supporting my conclusion that it simply does not work.

Moreover, more and more proponents of fundamental analysis are starting to recognize its deep failures. As an additional example to the article I linked in the prior sentence, in a paper written by Professor Hernan Cortes Douglas, former Luksic Scholar at Harvard University, former Deputy Research Administrator at the World Bank, and former Senior Economist at the IMF, he noted the following regarding those engaged in “fundamental” analysis for predictive purposes:

“The historical data say that they cannot succeed; financial markets never collapse when things look bad. In fact, quite the contrary is true. Before contractions begin, macroeconomic flows always look fine. That is why the vast majority of economists always proclaim the economy to be in excellent health just before it swoons. Despite these failures, indeed despite repeating almost precisely those failures, economists have continued to pore over the same macroeconomic fundamentals for clues to the future. If the conventional macroeconomic approach is useless even in retrospect, if it cannot explain or understand an outcome when we know what it is, has it a prayer of doing so when the goal is assessing the future?”

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Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net ( more

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Gary Tanashian 2 years ago Contributor's comment

So if you wanted to say that the funda followed by 90% of gold bugs is no good, I would agree w/ you 100%. But not your assertions as you make them, Avi.

Gary Tanashian 2 years ago Contributor's comment

The funda said avoid gold in 2012. Never mind this garbage about money printing and inflation. Those are not funda or they are wrong headed funda. It's yield curves, yield dynamics and gold's ratios to items like the stock market that matter.

Avi Gilburt 2 years ago Author's comment

Gary, no one was saying this in 2012.. everyone was looking up.

Again, read this to understand why fundamentals will ALWAYS lag:

seekingalpha.com/.../4020394-sentiment-speaks-sentiment-trumps-fundamentals-news

Gary Tanashian 2 years ago Contributor's comment

You keep simplifying, as in "everyone was looking up". Everyone most certainly was not looking up. In 2012 technical supports broke that indicated the bull cycle was broken. But also, Operation Twist was a massive fundamental shift in that its express mission (as stated by the Fed) was to "sanitize" inflation and drop the yield curve. This is fact.

I know you want to believe your TA/Sentiment stance is iron clad and as simple as you state. But it's not. Tell me, what was your stance in July? Was it bullish the precious metals or bearish? Gold bugs were way over confident so there I'd say that if you were following sentiment then you would be right on. TA did not give clues until certain supports were taken out. But a funda underpinning (I suppose you could call it a sentiment indicator too), like the CoT, had exhausted a trend toward over bullish by the large specs. Have you remained bearish all these months later? Once a trend in the CoT turns the next buy opp. is usually not until the trend is exhausted. That's fundamental.

Avi Gilburt 2 years ago Author's comment

COT is a sentiment indicator.. not heavily reliable but it is. It tells how some are positioned. That is not fundamentals.

Gary Tanashian 2 years ago Contributor's comment

You over simplify once again. You cherry pick the wrong-headed "fundamental analysis" put forth by wrong-headed analysts and claim funda analysis does not work. No sir, the WRONG funda analysis does not work. The right FA would and did keep people out of gold ever since the yield curve got smashed down in 2012.

Avi Gilburt 2 years ago Author's comment

Its easy to say that in hindsight.. especially when all the fundy analysis was looking UP at the time in metals. Just ask anyone who was reading analysis at the time.. it was ALL pointing up. That is why soooooo many got so hurt.

If you have an issue with how I view FA, I suggest you take it up with Prof. Douglas. I think he has a better handle on FA than almost anyone in the world, and has recognized its utter failings.

Gary Tanashian 2 years ago Contributor's comment

Perhaps you do not remember, but you critiqued an article of mine at SA and I tried and tried to explain but you seem to have a moat dug around your castle of thought. What I am saying is that yes, the funda that the average gold bug believes... it's utter crap. But you cannot just assert that funda do not matter. I am primarily TA, but I marry the correct funda (and sentiment) w/ TA for the best probabilities. It is not only about TA and sentiment. Those lag the earliest funda signals sometimes.

Avi Gilburt 2 years ago Author's comment

Gary.. what you still do not understand is that sentiment is what causes fundamentals. It is a logical progression if one actually thinks about it:

seekingalpha.com/.../4020394-sentiment-speaks-sentiment-trumps-fundamentals-news

Bill Johnson 2 years ago Member's comment

I think it's clear that both can have value, but yes, hindsight is always 20/20.

Avi Gilburt 2 years ago Author's comment

I don't agree that they both can have value, since anyone who has followed FA for the last 5 years has been trashed. Why do you need more than what has worked for the last 6 years? THAT is what I don't understand... other than the fact that people use FA as a crutch are just unwilling to part with it, even though it has clearly failed.