Gold Cycles Predicted The Recent Gold Price Rally - What's Next?

Sunday, October 21, 2018

gold analysis graphic

From my prior article earlier this month, a short-term upward phase was deemed to be in force for the gold market, with higher gold prices expected to play out, due to the position of the 34 and 72-day time cycles. With stocks, a sharp decline was expected to materialize - which has also came into fruition.

From my 10/6/18 posting: "the probabilities now favor our 34-day cycle to have troughed with the recent tag of the 1184.30 - and with that to be headed higher off the same in the coming weeks, due to a low-end statistical inference in regards to this component. Just how high the upward phase of the 34-day wave will carry is still speculation at this point, though a low-end statistical analysis of price suggests a potential push up to the 1236-1260 level (December, 2018 contract), before peaking the larger 72-day cycle."

Current analysis: In terms of price, a statistical analysis of the 34-day cycle told us that a rally to the 1236 level or better was likely coming, though there was the obvious potential for additional strength through the same - due to the configuration of the larger 72-day component. Stepping back, the upward phase of the larger 154-day cycle is now indicated to be in force off the 1167 swing bottom, though the patterns do favor the move up off the same to end up as an eventual countertrend affair.

Here is what our smaller 34-day cycle chart looks like with the current action:

Gold daily Continuous Contract Chart

As we can see on the chart above, both the 34 and 72-day cycle channels are pointing higher at the present time - which favors additional strength going forward. The channels are currently extrapolating to the 1260's (December, 2018 contract), which would seem to be an ideal magnet in the days/weeks ahead, with support in-between around the 1215-1220 level.

Stepping back, the upward phase of the larger 154-day cycle is also indicated to be in force, which favors a rally up to the 154-day moving average to be in progress - which lines up with the channel analysis (and statistical notes) with the smaller-degree waves:

With the above said and noted, the overall assumption is that gold is in the midst of a larger countertrend rally phase - one that will eventually hold at or well below the 1390's, which encompasses both the September, 2017 and January, 2018 price peaks. If correct, the next downward phasing of the 72 and 154-day cycles should take the metal back below the 1167 swing bottom in the months to follow.

Commercial Hedgers

In looking at the COT numbers from last week, the commercial hedgers made a sharp position shift, exiting their entire net long position (25,886 contracts) - and have now moved to a net short position of 31,996 contracts. From my past articles, the net long position of the hedgers was seen as supportive of a mid-term rally phase, and thus their recent move back to the bearish side now withdraws this support. This adds weight to the idea that the current move up will end up as a countertrend affair, even though it may have further to go before peaking.

US Stocks

From my prior articles on the U.S. stock market, the mid-term outlook called for a sharp decline playing out into early-Autumn, one which saw the 200-day moving average acting as the minimum downside price magnet:

With the action seen in recent weeks, the SPX has met the expected tag of the 200-day moving average, though there is the potential for additional weakness on down to the lower 360-day moving average - following the completion of the recent shorter-term rally phase. Note as well that this 360-day moving average is also right at the bottom of the rising four-year cycle channel, and thus needs to contain any mid-term decline.

As for the cycles, the next mid-term trough for stocks has been projected to come from the 180 and 360-day waves, with the last trough for the smaller 180-day component having been registered back in February. The last bottom for the larger 360-day cycle was made back in August of 2017, with the low for the current 180/360-day downward phase having been forecast for the Autumn of this year - which we are obviously in.

For the bigger picture for stocks, the key is whether the current correction phase of the 180 and 360-day cycles will be able to remain above the 2645 SPX CASH figure on a monthly close. That is, if it can, then a countertrend decline with these two cycles should give way to new all-time highs on the next upward phase of the same, which would be expected to last into the Spring of 2019 or later. From there, the larger four-year cycle (chart, above) should top out, for a sharp decline into late-2019 or beyond.

Otherwise, there is an alternate that says that the peak for the four-year cycle has already been registered at the 2940.91 swing high, which can only be confirmed by taking out certain levels (noted in my Market Turns report). Should that path instead materialize, then the downside 'risk' for the next bear market is back to the 96-month moving average, due to the fact that both the four-year cycle - and a larger nine-year wave - are going to be responsible for that decline. Stay tuned.

Jim Curry

The Gold Wave Trader


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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.