Gold Prices Crashing Down Into Cycle Low

Sunday, May 20, 2018

fine gold

From the comments made in recent articles, the downward phasing of the 72-day and 20-week cycles is still deemed to be in force in the gold market, with the next mid-term trough is expected to come from the same - and which is due to materialize at anytime. Even said, as long as gold remains below certain key price levels, lower numbers can continue to be seen, before this anticipated bottom is set in place.

Gold's Dominant 20-Week Cycle

Here again is our 20-week cycle for gold, with the shaded area being the 'ideal' range for its next bottom to try and materialize:

With the above chart, we can see that we are right in the middle of this anticipated bottoming window. Having said that, anyone that follows cycles knows that peaks and troughs can come outside of the average range, and thus we have to use other indications to discern when a bottom (or peak) has actually formed.

With the above said and noted, our upside reversal levels - once taken out - are always our best indication/confirmation that a cycle bottom is set in place. For that to materialize here, gold (June, 2018 contract) would now need to see a reversal back above the 1327.00 figure, a number which could continue to drop going forward, depending on the action seen in-between.

The 72-day Gold Cycle

As mentioned in a prior article, there is also a 72-day cycle that is present in the gold market, though with this cycle being more erratic, and thus is less dominant at the present time. Here again is a look at that particular cycle:

In looking at the above chart, the shaded areas represent levels where our 72-day 'oversold' indicator spiked above its upper reference line, and which did give way to at least a temporary reprieve into early last week. Having said that, lower lows have obviously followed, though this indicator is now showing a divergence from price - and could be seen as at least a mild technical positive. More important, however, is our 1327.00 upside ‘reversal point’ - which is the new dividing line between the up and down phase of the 72-day and 20-week cycles.

The Mid-Term Picture

For the mid-term outlook then, the next semi-important low for gold should come from the combination of the 72-day and 20-week cycles. Once that bottom is set in place, then a statistical analysis of these waves suggest that a minimum rally of 8% will be seen, though the average rallies coming out of this type of bottom have been over 16%. In terms of time, a low in the days/weeks ahead - if seen as expected - should give way to that rally phase into the Summer months, which is right in line with our original 2018 forecast issue.

For the bigger picture, our assessment of the gold market is that a Summer time rally will end up peaking the next 72-day and 20-week upward phase, and with that will give way to another decent decline into what is currently looking to be the Autumn months. From there, yet another low will form, giving way to strength again into the first few months of 2019. However, that is trying to look to far into the future for now, though we do like to have some idea of how the longer-term action might play out.

The Shorter-Term Gold Outlook

From my last article, the upward phase of the 10-day cycle was deemed to be in force to some degree, with this cycle - as well as the slightly-larger 20-day component - responsible for the most recent try at strength. Having said that, as long as gold prices held below the 1369.50 figure (our prior upside ‘reversal point’ for the 72-day and 20-week cycles), that rally was seen as being a potential countertrend affair, one which would be followed by lower lows into later this month.

The chart below again shows and updates this 10-day cycle:

With the above said and noted, this 10-day cycle is now some 13 days along from its last labeled trough, and with that is again due for at least a short-term bounce phase. In terms of price, my rule is that a cycle will revert back to a moving average of the same length approximately 85-90% of the time, and with that a rally back to the 10-day moving average or better should try and materialize in the coming days.

There is also the 34-day cycle, which is the most dominant of the shorter-term gold cycles. Here again is that wave, in chart format:

Normal rallies with this 34-day wave will see the 34-day moving average acting as a magnet - which the most recent rally did not. With that, this wave is likely still searching for its bottom, though what price level that will come from remains to be seen. As with the larger 72-day and 20-week cycles, our upside ‘reversal point’ for this 34-day wave now becomes the 1327.00 figure (June contract), though we expect this number to drop sharply going forward, depending on the action. Obviously, the most up-to-date numbers are published in my thrice-weekly report.

Gold Technicals

In looking at the technical side of the gold market, one indicator that I like to track is the gold miners advance/decline percent, which is shown on the following chart:

Of note is that this indicator is diverging firmly from the price action of gold - which is something we might expect to see prior to a mid-term cycle bottom in the latter. In other words, while gold is obviously making a decent push to lower levels, the GDX advance/decline line percent is seeing only a marginal pullback - holding a firm relative-strength. I view this as supportive of a bottom with the 20-week cycle, though it won't mean that lower numbers can continue to materialize before this trough is actually set in place.

Having said the above, more important at the present time is our Gold Timing Index, which is shown again on the chart below:

In looking again at the above, we can see that our Gold Timing Index is still diverging from price action. From the comments made in recent articles, for the next mid-term buy signal to develop, this divergence would need to remain intact - and the indicator would need to see a daily close back above its upper standard-deviation band, which has yet to materialize. Also, I should add that - should this divergence fail to hold - then the same would negate our next potential mid-term buy. We will see how this plays out going forward, in light of the recent price action.

Lastly, the chart below shows the current position of the commercial hedgers:

In looking again at the COT numbers from last week, the commercial hedgers covered approximately 16,000 shorts, which drops their current net short total down to -118,089 contracts, with the data current as of the 5/15/18 close. The gray shaded areas on the above chart show levels where the commercials were positioned similar to what they are right now, and each of these were seen just prior to - or just following - important cycle bottoms.

Gold Prices: The Bottom Line

Summing up the above, gold prices are still looking for a mid-term cycle bottom, though the only confirm of that low in place would be for a reversal back above the 1327.00 figure (June contract) to be seen. Alternately, we are keeping a close eye on technicals - such as our Gold Timing Index - for an early-bird indication of a bottom. 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.