The Gold market is in the process of forming a cycle bottom, though whether that
low is yet in place remains speculation at the present time - and with that we are
patiently awaiting confirmation of the same.
As mentioned in some recent articles, the main cycle that is currently controlling
prices is the 20-week wave, with that cycle now at or within normal bottoming territory:
As we can see on the chart above, we are moving into bottoming range with the 20-week
cycle, though it is too early to suggest this wave to have troughed. There has been
some focus on the May 4th timeframe (plus or minus a day or two in either direction)
to end up as the next low for the same, with the lowest level thus far coming on
With the above said and noted, until a lower level materializes, Gold (continuous
and June, 2018 contract) would currently need to see a reversal back above the 1369.50
figure to confirm a low for this 20-week wave to be set in place. Obviously, that
number is well above current price levels, though we do expect this reversal level
to drop sharply going forward, depending on the price and technical action that is
Going further with the above, the next low for the 20-week wave should also end up
as the bottom for the smaller 72-day wave, which is shown again on the next chart:
Once the next 34-day trough is set in place, then the minimum short-term rally should
see the 34-day moving average or better acting as a magnet; this is based on my rule
that a dominant cycle will return to a moving average of the same length better than
85-90% of the time. Adding to this, the greater-majority of the upward phases of
this wave have seen rallies of at least 4.4% before peaking, lasting an average of
18 trading days before doing so, giving some added visibility of what to expect in
the near future.
With the above said and noted, there is a good shot that the bottom for the 34-day
cycle has either formed - or else has a marginally lower low still out there in the
days ahead, made at or into our early-May bottoming window. If correct, then we should
see a rally back to the 34-day moving average or higher into what is looking to be
a May 22nd turning point high. From there, we see the potential for another short-term
bottom to form into the late-May or early-June timeframe.
Regardless of the above, the stepped-back view is looking for a rally with the 72-day
and 20-week cycles into the Summer months, which is in line with our original 2018
forecast path. In terms of price, the normal low-end statistical rallies with these
waves have been at least 8% off the bottom, though the average have actually been
16%, lasting an average of 39 trading days from trough-to-peak. This gives us some
idea of how the expected rally should play out into the Summer of this year, once
the next trough is in place with these larger cycles.
In looking at technical indications this weekend, our Gold Timing Index (chart above)
has diverged from the recent new price low - which is the initial setup for a mid-term
buy with this indicator. As shown on our chart, recent signals are marked with red
and green lines, and have proved to be very accurate in calling the mid-term trend
with Gold. There are also short-term signals within the same, which we post in our
Gold Wave Trader report (published 3 times per week). The last such signal was a
sell signal, coming at the 3/26/18 close (i.e., 1360, continuous contract).
Adding to the notes above, for our next mid-term buy signal to actually develop,
our Gold Timing Index would need to see a daily close above its upper standard-deviation
band, something which would likely require a decent rally to play out first - with
that rally expected to come from the aforementioned 34-day time cycle. We will be
keeping a watchful eye on this going forward, should it develop.
In looking at additional technical indications from sentiment, we can take a look
at our next chart:
In looking at the COT numbers from last week, the commercial hedgers covered approximately
30,000 shorts - with their current net position now at 131,872 contracts, which is
their lowest position since the December, 2017 price trough. I see this as a bullish
indication going forward, and is generally supportive of a rally phase in Gold, though,
as noted earlier, whether this cycle low is yet in place remains speculation.
On the chart above, shaded areas show the commercial hedger positioning at prior
lows for the metal. To the far right, you can see that we are at or nearing levels
that have marked prior bottoms. As mentioned, I see this as supportive of a rally
- which is expected to come from the 72-day and 20-week cycles - though we are still
waiting to see if and when this bottom is confirmed in place, and/or whether our
Timing Index should a new mid-term buy signal. Stay tuned.
The Gold Wave Trader
Jim Curry is the editor and publisher of The Gold Wave Trader and Market Turns advisories
- each of which specializes in the use of cyclic and statistical analysis to time
the Gold and U.S. stock markets. He is also the author of several trading-related
e-books, and can be reached at the URL above.
Of particular note with the above chart is that our 72-day 'oversold' indicator -
which is shown on the lowest panel in red - has recently spiked above its upper reference
line. This action is normally seen closer to cycle bottoms than tops, though it won't
guarantee this low is set in place. Note that - like the VIX for the SPX - this indicator
moves inversely to price action.
For the shorter-term picture, the most dominant cycle for the Gold market is the
34-day wave, which is now moving into extended range for a bottom, with the same
recently making lower lows at the 42 day mark: