First, Gold Goes Up On Mideast Unrest. Then, Gold Goes Down Despite Mideast Unrest?

In the 2004 book Prechter's Perspective, EWI's president Bob Prechter provided this insight:

 

"Fundamental analysts use data generated outside the market to come to their conclusions. Fundamentalists assess events and situations apart from market behavior, considering them the cause of market movements. They forecast where markets are likely to go in response to those background events or conditions they feel are significant...

 

"Sometimes [a news item] appears to fit a day's trading so perfectly that everyone 'knows' what the cause of the day's move was. Other times, the market does the opposite of what everyone would have expected. This unreliability proves that news is not determining the trend. There is almost always enough news to make causal claims in retrospect, which is what media people do constantly."

 

Recently, those "media people" played that very game of connecting the news dots to the gold market one day -- only to disconnect those same dots the next.

 

You remember that gold soared to near all-time highs on March 11 and March 14. In the wake of this rising trend, some financial media experts "knew" without a doubt that instability in the Middle East was the main catalyst, as these items from major news outfits make plain:

 

• "Gold Steady With Focus On Unrest In Arab World"
• "Gold Rises On Libyan Turmoil"
• "Gold Prices Higher On Japan, Middle East. It's one event after another that benefits gold. We constantly see the emphasis on a flight to safety and quality -- attributes that boost gold."

But then, in early trading March 15, gold turned south in a wrenching, $28-per ounce sell-off. That's despite the fact that the supposedly "bullish fundamentals" of Middle Eastern and Japan's instability remained the same, if not worse. So on March 15, some pundits offered this insight into the matter:

 

"Precious Metals Get Pummeled. Gold which is typically considered a safe haven amid global economic uncertainty proved vulnerable to the global selloff as investors moved to cash for profits."

 

And herein lies a major dilemma: How do you know whether gold is going to provide shelter from the economic storm -- OR -- if it's going to get swooped up into the eye of said storm?

 

You can't, if all you look at are "the fundamentals." And while there is no crystal ball when it comes to forecasting the market, you do have an alternative: technical analysis, like the Elliott wave method. It can help you gauge the trend in the long and short-term.

 

For example, mid-day on March 15, showed subscribers the following intraday close-up of gold with a forecast based on objective measures such as the Elliott wave pattern .

 

 

 For those new to our pages, this short-term Elliott wave pattern is a classic "double zigzag": a repeated, three-wave move labeled A-B-C-X-A-B-C, in which the top of wave B is noticeably lower than the start of wave A. And, where wave C typically terminates well beyond the end of wave A.