As pointed out in recent articles, the main cycle governing the price of Gold is
the 20-week one, which has been projected to trough anywhere in the current timeframe.
Once that low is complete, the metal should see a decent rally into the Summer months,
one which should be in the range of 8-16% - before setting up for another decline
phase into the Autumn months. Let's take a look again at our first chart:
The 20-Week Cycle in Gold Prices
The chart above once again shows our 20-week Gold cycle, detrended, which shows the
most recent lows for this particular wave. The shaded are shows the normal bottoming
'window' for the same - which is the overall range of where we should be looking
for it to trough.
In terms of time, I also publish short-term ‘reversal' dates for Gold, and we use
these to zero in on potential bottoming dates - within the larger 'zone' noted above.
The last of these was mentioned as the May 4th date (plus or minus a day or so in
either direction) of which the May 1st low is just outside of. Thus, there is the
potential that the 1302.30 bottom (June contract) will end up as the trough for the
20-week cycle, though that has yet to actually be confirmed.
Going further with the above, for the best confirmation that the 20-week wave has
bottomed, Gold would currently need to see a reversal back above the 1369.50 figure
- which is obviously well above current price levels. The good news is that this
number could start to drop sharply going forward; the bad news is that the metal
would likely require a new price low for that reversal point to actually drop.
Gold's 'Erratic' 72-day Cycle
Just below the 20-week cycle in Gold, there is a smaller 72-day component, which
is more erratic at the present time - though it is expected to trough with the larger
20-week wave. This 72-day cycle is shown again on the following chart:
For the very short-term, the cycles that dominate the Gold market are the 10 and
34-day waves, with a less-dominant 20-day component also present. The chart above
shows the smaller 10-day cycle, which recently confirmed its upward phase to be back
in force. In terms of price, we were expecting a minimum rally back to the 20-day
moving average - which we have obviously seen with the recent action.
Having said the above, the ideal path for the near-term would be for additional chop
higher to be seen into later this month, with some focus on the May 21st timeframe
(plus or minus) for that strength to conclude. Even better, a rally on back to the
34-day moving average would have the best technical 'look':
Going further with the above, if the rally into May 21st should end up as a countertrend
affair - holding below the 1369.50 figure - then a drop back to or below the 1302
swing bottom can still materialize into late-May or very early-June, only then to
trough the larger 72-day and 20-week waves. Until then, our line-in-the-sand remains
at the 1369.50 figure for the larger two cycles.
For the mid-term then, regardless of what happens between now and early-June, we
expect the next significant rally to come from the 20-week cycle. In looking at a
statistical breakdown of this wave, we know that the low-end rallies have been at
least 8% off the bottom - though with the average rallies being closer to 16%. All
said, once the next mid-term trough is in place, we should be looking for a rally
of 8-16% (or better) into what is currently projected to be the mid-Summer timeframe,
plus or minus.
Gold Timing Index
In looking at technical indications for Gold, we move to our Gold Timing Index -
which is our best indicator of mid-term trend direction. This indicator has been
on a sell signal since September of last year (1340, continuous contract) - with
a secondary sell signal coming back in February of this year:
At the most recent low of 1302, our Gold Timing Index registered a divergence - which
is our initial setup for a potential mid-term buy with this indicator. Having said
that, for this buy signal to actually develop, the indicator would need to see a
daily close above its upper standard-deviation band, which has obviously yet to materialize.
This is something that we will be watching for going forward, should it appear. And,
since these signals normally follow mid-term cycle turns, the assumption would be
that a buy signal with the same - if seen - would be a good confirmation that the
expected rally with the 72-day and 20-week cycles is in force.
The Bottom Line
The bottom line with all of the above is that Gold is in the process of forming a
mid-term low, even though there are no firm indications that this bottom is yet in
place. Short-term, however, the ideal path would favor additional strength into later
this month; if that move ends up as countertrend, then there is still the potential
for lower lows to follow into late-May or early-June, before actually bottoming the
mid-term downward phase. 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 initial observation with the 72-day wave is that the channel that encloses the
same is currently sloping to the downside - meaning that the overall price trend
is obviously pointing south. On the flip side, in red (lowest pane) is our 72-day
'oversold' indicator recently spiked above its upper reference line - something normally
seen at or near price bottoms with Gold. On this chart, I have marked with gray vertical
lines the prior instances where this indicator has moved above its upper reference
line, and you can see that these were periods which were normally followed by at
least short-term rallies. I should also add that - like the VIX (for the stock market)
- this indicator moves inverse to price action.