Imagine financial markets as individual cars. In that picture, mainstream economists say that "fundamentals" -- i.e. the vast array of news events and economic data churning out on a daily basis -- are in the driver's seat, steering which way prices go. It's a nice idea, except for one problem: "Fundamentals" aren't always in the driver's seat of financial market price trends. Most of the time, in fact, they're sitting shotgun, along for the ride. Worse, some of the time they're locked in the trunk unable to see where prices are moving until the car has already arrived at its destination. Take, for instance, the recent 2-day run in gold prices. During this time, the widely-held theory of news-driven markets completely ran out of gas. And here's why: According to the usual sources, the single-biggest driver of gold is Greece -- and the "will-they/won't they" uncertainty surrounding its exit from the euro. But as the following news items show, gold prices were not reacting to the events in Greece. Rather, gold prices moved first, and the events in Greece were retrofitted to price action that had already taken place. Gold prices pause on July 6: "Gold Prices Unmoved By Greece. In a week in which events seemed tailor-made for gold's safe-haven interest, the gold price failed to rise." (Value Walk) Gold prices rise the morning of July 7: "Gold surges on haven demand as Greece risks exit from eurozone." (Sydney Morning Herald) Gold prices fall hard the afternoon of July 7: "Gold Dips Despite Greek Debt Crisis... concerns about Greece's potential exit from the eurozone failed to have much impact on the traditional safe haven asset." (Wall Street Journal) So, let's consider that same 2-day run in gold from an entirely different perspective -- i.e., through the lens of Elliott wave analysis. You should know, though, that Elliotticians don't entirely disregard the debris of "newsy" data floating around in the backdrop of financial markets. They appreciate them for what they are -- usually, afterthoughts to the main driver of trends, investor psychology, which unfolds in observable Elliott wave patterns on price charts. Now, let's go back to that 2-day run in gold. On July 6 -- BEFORE prices turned down -- our Metals Pro Service analysis of gold showed this near-term chart which set the stage for a third-wave decline in wave (3): Gold has completed a wave (2) or will with a marginal new high. Falling through 1161.20, would continue to suggest the decline is resuming. The broader outlook remains bearish...because third waves usually exceed the length of first waves. In an ideal world, there would be such thing as a fool-proof method of market forecasting. This is not that world. Elliott wave analysis is not about certainties; it is about identifying the most probable market turns in advance, and limiting your risk along the way.

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