Why Our Model Values Gold At $1450
We have watched the big wave one and two unfold in the bond market of Europe. We think we have seen the turn. It is therefore likely that a huge wave three in rates has begun in earnest.
It has been our contention that the interest rate cycle would turn in 2010. It did in Europe. We stuck to our 2.5% US long bond call has the recipient of scared money. Massive spikes are always deemed turning point. We explain this phenomenon in “The End Game is Here”.
We attach a lot more importance to what takes place in Europe. Our gold model is geared that way.
The recent behaviour of gold is the best proof. How can you account for a weak gold price when the US dollar is weak? We do cover the grounds on this topic in a recent gold article. Some of the intricacies of movements are popular trades being undone.
The start of a wave three in rates sets up a deflation trap once again. Primary waves all sport typical 5 waves form. The corrective nature is mostly of a zigzag type. This is why we are short 10 years Italian Treasuries from 4.20%.A quick look at wave two is beautiful textbook Elliot. We are now at 4.62%.
The market thinks it has everything to do with politics. As you are a good student of waves, you know better. Keep the cycle in mind as we cover the gold valuation model.
We thought that gold would top in September 2010. We think of this time spent as a large degree consolidation. We have not been at all worried to miss the bull market. We have fully participated in it the last 10 years. The recent bounce is more likely viewed as a B wave. I suspect, we are at the start of a C wave. I factor the coming rates increase. Our model values gold at $1450.
We look to make a big entry once again. We are extremely disciplined and wait for things to be aligned perfectly.
Yves Lamoureux, http://lamoureuxandco.com/