Gold forecast: Bearish sentiment clouding bullish fundamentals

Those who focused solely on fundamentals have had a difficult time over the last few years. They have watched as Central Banks have embarked on the dubious policies of QE and ZIRP in an attempt to prop up a broken banking system at the expense of real economies.  Governments have run, and continue to run, unsustainable deficits.  Issues of insolvency due to excessive debt burdens have been misdiagnosed as liquidity issues and have apparently been solved by the issuing of more debt.

Global politics becomes more polarised as energy issues become more dangerous; from Libya, Syria, Egypt, Ukraine, Iraq, Iran, Afghanistan to mention a few of the conflict areas. Currency wars are breaking out across the globe, forcing investors to chase riskier and riskier yields.

Euro tensions grow as the productive North refuses to accept its vendor financing model is broken and its over indebted customers are now unable to repay their debts. The Union itself seems to still fail to appreciate the glaring flaw of a currency union without a fiscal union – doomed to fail from the start and now attempting to solve it by bailing out the irresponsible Northern banks by adding a greater debt burden to the poorer south.

In spite of all of the above and the many other issues facing global investors, the Dollar outshines gold on both a medium and short term basis. Of course there are many differing opinions as to why this is the case, from Central Bank conspiracy theories to the Barbarous relic meme, neither of which stand up to the scrutiny of Gold’s longer term performance since the turn of the Century.

We, however, believe that sentiment is what drives the market over the short to medium term. “In the short run, the market is a voting machine, but in the long run – it’s a weighing machine.”  Benjamin Graham. Gold became overbought in 2011, investors over reacted to the Euro crisis, the US debt ceiling and downgrade. ‘Buy the rumour sell the news’ was the meme for that period. These issues were not going to end the world and they didn’t. Had Gold continued to rise through the end of 2011, it would have entered an unsustainable parabolic blow off top far sooner and at a much lower price than it will eventually reach at a later date.

So if sentiment at that time ran far in excess of the fundamentals, where are we now? Well, we believe we are entering the converse to 2011, where sentiment for the Dollar in relation to Gold is far too bullish in comparison to the fundamentals. So this begs the question what changes this negative sentiment, what will be the catalyst that starts the next Bull Run? Our answer is again the same process that ended the Bull Run in 2011 – price and excessive sentiment.

We have been consistently forecasting this drop for months using our unique multi time-frame fractal pattern projections. Our analysis has been consistently telling us that the gold market needed to move in to an unsustainable phase to create the rocket fuel for the next major bull market. All long term bull markets need periods of consolidation which often end with a final period of capitulation. We believe Gold is no different.

So whilst our forecasts continue their downward trend we are beginning to see Gold as an attractive value play. Our multi time-frame sentiment indicators are negative and our forecasts point to them becoming horribly negative over the next few months.  We have no lower target for this sell-off, but our unique forecasting method will be able to monitor a deceleration in this downward phase, and then model the start of the next bull phase, just as we have been able to model the recent rise and fall we have been in, which has blindsided so many traditional analysts.

Price has remained within our forecast channel for quite some time as you can see by viewing our past forecasts http://www.kenticehurst.com/forecast.

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