Alessio Rastani interviews Bob Prechter of Elliott Wave International on the gold bear market and long-term price targets
Alessio Rastani speaks with Bob Prechter about the current gold correction and where prices may ultimately bottom.
Summary
Bob Prechter of Elliott Wave International presents a proprietary Fibonacci framework for gold, arguing that every major turning point since the 1970s has occurred at a Fibonacci multiple of the original $35 fixed price — and that the next significant support sits at the 89x multiple, approximately $3,115. Prechter presents a proprietary chart showing that gold's major turning points since the 1970s have consistently occurred at Fibonacci multiples of the original $35 fixed price, and argues that the next significant support level — the 89x multiple at approximately $3,115 — is the most likely target for the current bear market low. Both analysts agree that the parabolic move above the 144x multiple (approximately $5,040) represented an overstretched top, and that the correction could take several years to complete. He cautions that if gold breaks below $3,000, the entire long-term bull market thesis would need to be reconsidered and he would instead consider that gold had made a grand supercycle price top. Prechter also credits Elliott Wave International colleague Steve Hochberg — co-editor of the Elliott Wave Financial Forecast and author of the short-term update — for tracking gold's moves in detail throughout the bull run.
Key Takeaways
FULL TRANSCRIPT
Introduction and Context
Alessio Rastani: All right, guys. Hello and welcome. We are honored to have our special guest, Bob Prechter of Elliott Wave International. Bob and I are going to talk about gold. So, what is the metal up to? And could it be that this bear market could last some more months, maybe for the rest of the year? Or could it be that gold is potentially about to bottom this year? Which one is it? Join me — we are honored to have our special guest analyst Bob Prechter. Bob is, in my view, one of the leading experts on technical analysis as well as Elliott Wave theory. He is the author of some of the most important works on finance and technical analysis.
Bob Prechter: I appreciate the opportunity. This is not the kind of thing you can do on a television interview or something like that — they just don't even know what you're talking about. So it's great to talk with an expert in this area.
Alessio Rastani: That's very kind. Thanks very much indeed. I appreciate it. Bob, I understand you want to share some charts with us.
Bob Prechter: I've been following gold for many, many years.
Alessio's Prior Warnings on Gold's Parabolic Top
Alessio Rastani: Before we go on to those charts, I just want to quickly mention — for those who've been following my videos — that when gold was parabolic and going to like $4,000, $5,000, I was warning that gold had become extremely overstretched. We mentioned at the time there were several warnings of a potential topping pattern and maybe even a significant drop. Usually when price extends beyond a certain percentage beyond the 200-day moving average, that typically indicates extreme overstretch and overbought conditions, which usually precedes a major retracement and correction.
I think that the parabolic stage of gold has ended and that we're potentially going through a consolidation and pullback phase — a corrective phase — likely towards the average here, towards $4,000. And by breaking the support here, that would increase downside risk for a potential C-wave decline into this region. But it's also probable the C-wave could extend into the 200 simple moving average — that green line on the chart — which is approximately $4,000. The overbought conditions with the RSI, as we can see with the acceleration extremes — the red acceleration extremes — typically indicate extremely overbought, overstretched conditions. And now with the breakdown of support, the likely C-wave decline into the support region could take us into the region between $4,219 and $4,000. It's amazing to me that afterwards, when gold dropped, people were saying, "Well, there was no warning." No — there was plenty of warning out there.
Bob Prechter's Fibonacci Multiples Chart
Bob Prechter: Yeah. So this is not going to discuss wave counts per se, but I think it's an interesting chart and you won't find it anywhere else — I'm quite sure of that. Gold has a fascinating history. Gold was the money of the United States. It wasn't that dollars were worth so much gold — dollars were defined as a certain number of grains of gold. That's what a dollar was. And it was equivalent to $20.67 an ounce for virtually a century.
Then after the Fed was created and they started to inflate the money supply, back in 1934 — I think it was January 1934 — President Roosevelt said, "Well, we've got to raise the price." And he just pulled a number out of the air, which was $35. And that stayed in place until the early 1970s, which is a long period of time.
I started to notice that as soon as gold took off and was no longer anchored by law or by anything else, the turning points seemed to occur at multiples of that $35 price. And the multiples are Fibonacci multiples. Now, for people who don't know the Fibonacci sequence, it's a self-generating additive sequence. It starts with the number one. You add a one to it, you get two. Then 2 + 1 is three. And 3 + 2 is five. Then you get 8, 13, 21, 34, 55, 89, 144, and so on. And it turns out that these multiples seem to be marking the turns, roughly speaking, pretty well.
So we've got the first one, which is a five-times multiple at $175, and that was the orthodox top back in 1973 or '74. It went slightly higher just before gold was legalized in the United States under Ford. But that was a B-wave — that's an ABC correction. So the orthodox top was virtually exactly five times $35.
Then the next level would have been 21 times. That's the one that looked like it made a turn. Now it spiked through that level by quite a bit — over $100. But then, if you recall, in September of 1980, after the initial drop, it rose, and that's when gold stocks topped out. It topped at $720, and you can see that's almost the same as $735. So that 21x I think was very important.
The next multiple that worked out was 55, and that was virtually perfect. $35 times 55 is $1,925, and the high was $1,921. Beautiful. That was back in 2011.
And the next one was 144, which would take you above $5,000. And this one went through by a good 10%.
Alessio Rastani: But as you pointed out just a minute ago, it was an emotional spike. And right at the top, people shoved it up for a couple of extra days and it went through the number, but it fell back very quickly.
Bob Prechter: Now, I've left on the chart the next ones just to give you some perspective. If it takes out the recent high at $5,600, it's likely to go to one of these levels. However, let's look at the current setback. You've got three times, which is a Fibonacci number — three times $35 gives you the low in 1976. And then the eight-times multiple is a pretty good estimate of the two lows we had there. A 34-times multiple wasn't the exact low because that was about $100 below, but it was this little bump. And that happens to be exactly where gold started going up and people thought it was a triple top. Right in there is when we got very, very bullish on it — it was around $1,820. We said, "This is a one-two. It's going to take off." And it did. We've had a beautiful run up.
When it hit about $4,400, we said, "Look, this looks stretched. It's getting out of hand." Little did we know it was going to tack on another thousand dollars. But today it's even below there.
So the 89 is the only multiple in this group that we haven't seen a turn. I think — look, nobody knows where gold is going — but I think it's a pretty good estimate. If a long-term bull market is still in force, we're pretty confident that somewhere just above $3,000 an ounce, this bear should be over. And it's already dipped slightly below $4,000. People have finally started to become a little bit more bearish. Right off the top, people were buying gold and silver especially — and of course, silver, they've been killed buying the dip there. But now they're starting to buy less. So the process is working just as it should. We're in a corrective period. We said this could last a couple of years. We don't know. It's either going to be time or price that wears people out.
But if gold's still in a long-term bull market, somewhere just above $3,000 ought to be the low. If it breaks that level, then we have to reconsider the possibility that gold did make a major, major grand supercycle top price. Personally, I think it's going to correct and then turn around and start going to new all-time highs. But if it goes under $3,000, I will yank that.
So notice that risk is very low. You're waiting for, let's say, $3,300 or $3,200 or something to start adding. If it goes to $2,900 or $2,800, it's like, okay, I'm wrong. So these are very helpful levels.
Alessio's Response and the $3,115 Target
Alessio Rastani: I love the way you think, Bob, because everything is so structured and so methodical, and there's a logic and a rationale behind what you're saying, which I love. And obviously I'm a great follower of Fibonacci — I use Fibonacci myself. So that's interesting. I actually saw this chart before and mentioned it in one of my videos, and I gave you credit. I said, "Hey, Bob is mentioning that there could well be a drop here," and I mentioned the targets as well.
So just to go through that — you're saying that if indeed we are in some kind of a correction, which obviously we are, and likely a bear market or downtrend, whatever you want to call it, it could potentially go as low as the 89 multiple you have on your chart. And the price level seems to be at $3,115 on gold.
Bob Prechter: And notice from the previous levels we talked about, sometimes it'll go short or go through briefly — in some sort of panic, buying panic or selling panic. So it's a guide. It's probably a kind of a magnet, I think.
Alessio Rastani: I think even gold bulls will be pleased by this news if indeed this is what happens, because I know that many gold bulls would like to have another opportunity at cheaper prices for gold. So I don't think they'll be disappointed by this news.
And it's interesting to mention that as gold was rallying above that level — above the 144 multiple, going to $5,500, $5,600 — you hear the regular pundits on TV saying, "Oh, gold is now going to $20,000 and $50,000." And usually when that happens, you see those major turning points.
Bob Prechter: Yeah. When it was at $1,044 in December 2015, or $1,174 a few months later, they weren't talking about it at all. They were talking about whatever market was overpriced and telling you why you should buy more. So it's classic. And when they stop talking about gold again, it'll be a buy.
The Correction Timeline and What to Watch For
Alessio Rastani: I should also add, for people who are watching this video, that Bob Prechter in his newsletter — certainly for the last few years — has been absolutely correct. I think I'm correct that you were bullish on gold throughout the bull market on the metal?
Bob Prechter: We turned very emphatically bullish most recently at $1,820 an ounce. And we stuck with it all the way, and we had most of the wiggles as well. Steve Hochberg gets the credit for that, not myself. He runs our short-term update and he's also the co-editor of our Elliott Wave Financial Forecast, which is a monthly that leapfrogs the Elliott Wave Theorist. So something comes out every two weeks. And he was on top of every minute move in gold.
And lately he says, "Look, people are getting a little bit bearish. The correction is slowing down." So he's looking for a bounce as part of the corrective process — a rally in here. I don't care how the correction shapes out, but when it gets near the end, we're going to either see a clear ABC or a clear WXY double zigzag, or a clear triangle or something. And at that time, we'll know because people won't be talking about gold very much, and they'll be kind of talking about everything else but that.
Anyway, corrections, as you know, are tricky. Look at here — from $850 to $253, that whole 20-year period. There are rallies and every, "Oh, the bull market started. No it hasn't. Yes it has. No it hasn't." So we're in that kind of environment where you're going to get sharp counter-trend rallies as well.
Alessio Rastani: I'm glad you brought this up, Bob, because we can see in the 2011 peak, just near $1,921 — just under $2,000 — that dropped from approximately $1,900 to $1,044. That's a significant drop. Could we expect maybe not necessarily a 50% or 40% drop, but for example, if we don't drop to $3,115, could we at least see maybe $3,700 or $3,500?
Bob Prechter: I don't know. This is what I've got. Let's put it this way — I don't know if it's going to correct down to that level. It seems to have been working very, very well for the last 40 years. But if it does, then you start looking at your indicators and say, "Look, if they're suggesting a low — if sentiment's correct for a low, if momentum is drying up and so forth — that would be reinforcing information to say it's time to get interested again."
Alessio Rastani: And I think it's worth remembering, guys, that there could be all kinds of squiggles — ups and downs, there could be a bounce in the short term — but overall, we're still in a bear market and a downtrend. And it is probable that gold may still have more downside. I actually think it has, over the next several months.
Bob Prechter: I'll point out a couple of things that are interesting on this chart as well. From here at $1,921 down to $1,044, even though there were some fluctuations, it was a pretty straight drop. And then if you go back to the $200 down to $100, that was another almost 50% move and it was pretty much a straight drop. I'm not saying it's going to happen now — in fact, we really don't think so. But it's possible. Maybe it goes straight there and people say, "Oh my gosh, I made a big mistake up there at $5,000. I better get out." And that's when we'll be looking at it.
More likely, it's going to take a few years to where people — I've read comments on YouTube — there's a lot of confusion out there.
Why Geopolitical Events Don't Drive Gold
Alessio Rastani: People say, "How can gold be dropping when you have the backdrop of the Iran war happening?" And that's because a lot of people are still stuck in this mechanistic mindset, as you call it, Bob — people assume there has to be some rational, causal, mechanistic explanation. The reason why gold has to go up is because of the Iran war and all that. And when they cannot find an explanation as to why it's dropping despite the Iran war, they think, "Hey, what's going on here?"
Bob Prechter: Let's answer that question. Follow my cursor here — the Vietnam War was raging back in '65, '66, '67, '68. The Tet Offensive or something was a big deal. And gold's doing nothing, and then it's going down here. And I think somewhere around here we pulled out — '73, wasn't it? Nixon pulled out the last plane and the last troops from Vietnam. So all this is the Vietnam War, and we got out, and then gold took off.
So you can't use that stuff.
Alessio Rastani: Exactly. In fact, people who look at things like that are wasting so much mental energy. What you and I do is we look at patterns of psychology and patterns of the market, and we try to take our cues from internal information, not external information — that will screw you over every time. And we've done long-term studies about gold and recessions, and we found out that that's not a big reason to buy gold, or even depressions.
Bob Prechter: Wars — gold can go up in wars, gold can go down. It's just not a clue.
Alessio Rastani: Well, thank you very much for that. I really appreciate it.