Gold: The Calm Before a Record Run

By Elliott Wave International

The basis for analysis and forecasting at Elliott Wave International is fundamentally different from everyone else's.

Here's a prime example in gold.

This excerpt is from the March Elliott Wave Financial Forecast, when gold was trading below $2,050/oz.

Gold's three-month implied volatility has declined to its lowest level in over four years. While low volatility is not a short term timing tool, low volatility eventually precedes high volatility. At the same time, total open interest in gold futures has declined to its lowest level since December 2018, as traders are either closing futures contracts or abstaining from opening new ones. The low level of open interest means that investors’ attention is turning away from gold, and the low implied volatility indicates that investors do not expect gold to move much over the course of the next three months. Both are preludes to what we see as a major move forming in gold prices.

Gold rallied above $2,700/oz -- to all-time highs -- following EWI's forecast.

For an objective method to track and forecast gold's price moves -- read the Gold Investors' Survival Guide (free).

Manias Always End Poorly

By Elliott Wave International

Stocks relative to commodities are historically over-priced. A major sea change appears to be ahead. The September Elliott Wave Financial Forecast elaborates:

The title of the May 2021 issue of The Elliott Wave Theorist was, "Commodities and the Stock Market: Paradigm Shift Emerging." The issue included a version of the chart below showing stocks priced in terms of commodities all the way back to 1900. "This ratio has risen to 200 times since 1922, which is 102 years ago," EWT said. "It is time for a tidal change in both sectors, in the opposite direction." The inset on the chart shows that the tidal change is underway, regardless of a countertrend rally in the ratio from 2022, when the mania for technology and AI shares went into full blown orbit.

Note how each time the Dow/CRB ratio rallied to meet the top trendline over the past 60 years, a major peak in stocks relative to commodities occurred. The first run up took place before the trendline began, from 1920-1928, coinciding with the Roaring '20s. The ratio peaked at the end of 1928, and stocks crashed in 1929, which kicked off a bear market lasting until 1932. In inflation-adjusted terms, the bear market ended in 1949, one year after the ratio made a low. The ratio's rise until the late 1960s and early 1970s culminated with the Nifty-Fifty stock mania. The stock market then plunged amidst an oil crisis until late 1974, while commodity prices soared. Commodities peaked in 1980, at which time stocks started a major bull market. The Dow/CRB's rise to meet the trendline in 1999 coincided with the top in the dot-com mania and a crash in the NASDAQ. The Great Credit Crisis ended in early 2009, giving way to a bull market in stocks, as the ratio rose to meet the top trendline once again. This time, the push to the peak in April 2020 coincided with a bond-market bubble that resulted in negative yields and all-time highs in bond prices.

As optimism toward equities has reached a historic extreme, bearishness toward commodities is at a multi-decade extreme. As EWT noted, the Dow/CRB ratio is "set to fall back to the 'sensible' level of the 1960s-1970s."

You won't see analysis like this in the financial media news. Get unique insights delivered straight to your inbox – FREE.

This article was syndicated by Elliott Wave International and was originally published under the headline Manias Always End Poorly. 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.

Hey, Fed: Denial is Not Just a River in Africa

By Elliott Wave International

Posted September 11, 2024

It's the Federal Reserve's Open Market Committee meeting next week, and the money markets are pricing in a 25-basis point cut in the Federal Funds interest rate. Judging by the chart below, though, it could well be a 50-basis point cut.

It shows that the spread between the U.S. Treasury 2-year yield and the Federal Funds rate is at its most extreme since the 1980s, meaning that the 2-year yield is far below the Fed Funds rate.

Note the occasions when the 2-year yield was below the Fed Funds rate, and it was either a precursor to an economic recession, growth scare or a crisis. Yet the current consensus is that a "soft landing" for the economy is most probable. Given the obvious history, it's incredible that people think this time will be different.

Murray Gunn
Head of Global Research
Elliott Wave International

Want more market insights like this? Sign up to get them sent straight to your inbox - FREE - from Elliott Wave International: https://www.elliottwave.com/free/

The Fed -- Why Are We Paying These Guys

By Elliott Wave International

When it comes to interest rates, the Fed is NOT in control. The Fed does not lead; it follows the market.

This chart shows the Federal Funds Rate alongside the U.S. Treasury 2-Year Yield. You can see that at major turning points, it's the 2-Year Yield that moves first, and then after a while, the Fed changes its benchmark interest rate. This was profoundly the case in 2019 when the Fed cut rates well after the 2-Year Yield had declined. And of course, in 2022, the Fed had lagged the move higher in 2-Year Yields by many, many months before it started hiking.

Conventional analysts and the financial media are obsessed with how the Fed will change interest rates, thinking that it will influence the financial markets. But to find out how the Fed will act, all they need to do is look at the short end of the bond market.

Want more market insights like this? Get them sent straight to your inbox - FREE - from Elliott Wave International: https://www.elliottwave.com/free/

Why We Tip Our Hat to Warren Buffett

One would think that investors would be emulating their #1 hero. One would be wrong.

By Elliott Wave International

Warren Buffett recently acknowledged that he's playing in overtime in this thing we call life. At 93, the acclaimed investor is still very much in the game and making his moves.

Our August Elliott Wave Theorist elaborates:

We Are in Good Company

We have been steadfastly recommending complete safety in the form of Treasury bills, 2-year Floating Rate Notes, a safe bank and gold stored offshore. We have felt quite alone in this opinion. So, we were pleasantly surprised to see this headline, from CNBC on August 7:

Warren Buffett now owns more T-bills than the Federal Reserve

It's true: Buffett's investment firm, Berkshire Hathaway, owns $235 billion worth of T-bills; the Fed owns $195 billion worth. Of course, most of the Fed's money is in other government-guaranteed debt. Buffett's is mostly in stocks. Still, his current cash holdings are about twice the average for the previous five years. How did he accumulate so much cash? By selling stocks in this heady environment. As CNBC reported,

"Buffett, 93, pulled off a surprising and yet prescient move by selling big chunks in stock holdings including Apple last quarter, ahead of a drastic global sell-off this week. Berkshire has been a seller of stocks for seven quarters straight, but that selling accelerated in the last period with Buffett shedding more than $75 billion in equities in the second quarter."

One would think that investors would be emulating their #1 hero. One would be wrong.

The August Elliott Wave Theorist goes on to explain how many investors are behaving in the opposite manner as the Oracle of Omaha.

More than that, you'll learn why the Quarterly Report on Bank Trading and Derivatives Activities is one of the scariest reports you'll ever read.

Robert Prechter's Elliott Wave Theorist has published since 1979 and is still going strong.

Find out how you can access our latest stock market insights below.

FREE -- Read Our New Stock Market Highlights Issue

Want to see what's next for stocks and more? We've curated the must-read highlights from our top publications. Don't miss our unique analysis. Check it out now -- free!

Read now

This article was syndicated by Elliott Wave International and was originally published under the headline Why We Tip Our Hat to Warren Buffett. 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.