Forecast: Gold Cycle Update And Review

Sunday, March 17, 2019

gold bars

Last week's trading saw gold forming its low in Monday's session, here doing so with the tag of the 1290.60 figure (April, 2019 contract). From there, a rally was seen into Wednesday, with the metal pushing up to a high of 1311.60 - before spending the balance of the week in a downside consolidation off the same - though ending the week marginally higher overall.

A Review

With the action seen in past months, I thought it would be good time for a review of the cyclic picture in the gold market. Back in late-September of last year, the mid-term cycles were looking for a turn back to the upside, following a sharp decline into August - one which fell well over 200 points from the January price peak.

At the same time, the commercial hedgers were holding a net long position in the gold futures - which was seen as the biggest bullish argument for a mid-term rally phase. Going further, the largest cycle that I track - the 310-day wave - was looking ready to confirm a turn. Here is exactly how that cycle looked back in late-September of last year:

gold daily continuous contract chart

Of course, at that time, it was not yet known if the 310-day wave had bottomed - even though the detrend which tracks that wave was looking for a multi-month rally.

From my 9/30/18 article for Gold-Eagle:

"If and when the next mid-term trough is set in place, we should see gold rallying back to the 310-day moving average or better, though with that rally favored to remain below the September, 2017 peak of 1392.80."

As per my comments at the time, the upward phase of the 310-day cycle was expected to see a rally back to the 310-day moving average, as per my main rule in regards to cycles moving averages. Back in September of 2018, the 310-day moving average was well over 100 points away from price. Having said that, following the turn with this 310-day cycle, prices did indeed rally back to that key moving average - and then some. Here is how our 310-day chart looks, updated to the current action:

With the above said and noted, we can see that the 310-day cycle is still pointing higher at the present time, and with that the potential for higher highs in the coming months - following the completion of a smaller-to-mid-term correction seen in-between.

With the positioning of the mid-term cycles off the August, 2018 low, the same told us to expect any short-term correction phases - such as with the 34-day wave - to end up as countertrend, to be followed by higher highs into at least the first few months of 2019. This is what we have obviously seen, with an updated chart of the 34-day cycle shown below:

Note that each of the correction phases of the 34-day cycle saw the 34-day moving average acting as a magnet, forming a series of higher-bottoms - which, as noted earlier, is what we would expect to see during a mid-term rally phase. Having said that, the pattern was broken, with the most recent correction having taken out the prior low for the 34-day component.

What to Expect Next

For the mid-term picture, due to momentum considerations, we favor the 154-day cycle to have topped out at the 1349.80 swing high, registered back on 2/20/19. In terms of time, that peak was right into our expected range of February 15-22, which we noted in our Gold Wave Trader reports as being the next mid-term 'reversal date' range - and which offered up the best potential to peak the mid-term rally. Shown next is our 154-day time cycle:

In terms of price, the ideal path for the coming weeks/months is for a drop back to the 154-day moving average or lower to materialize, then to be on the lookout for technical indications of a mid-term trough forming. In terms of time, there is currently a focus on the wide range of April or May to trough this cycle, and we won't likely have a better idea of when it will bottom until we move further along in the current phase.

Short-Term Outlook

Inside every mid-term downward phase, there are the normal short-term rallies in-between; the reverse is true for mid-term upward phases as well. With that, following the drop down to the most recent low of 1280, we were looking for a decent countertrend rally to develop:

From last week’s article: "In our report, we noted that the short-term cycles for gold were at or into normal bottoming range, with a reversal back above the 1292.00 figure (April, 2019 contract) being the best indication that the smaller-degree waves had bottomed - and with that were due for a rally in the days to follow. With that, the overall assumption is that gold is headed back to its 20-day moving average or higher in the very near-term, with resistance to that rally at or into the 50-78% retracement zone of 1314-1334."

Current analysis: As noted last weekend, the short-term 10 and 20-day cycles had confirmed a turn back to the upside, and with that the overall assumption was that a minimum rally back to the 20-day moving average would be seen. We can see how this played out, with the additional strength to the 20-day moving average being seen into mid-week, last week:

As to where the short-term rally will top - or has topped - we don't yet know. All that we can say is that the minimum expectation has been met. Should a higher high still be out there, then resistance is again noted at the 1314-1334 region (April, 2019 contract), which encompasses the 50-78% retracement zone of the prior swing down.

Otherwise, any break back below the 1280 swing bottom, if instead seen, would confirm the short-term upward phase to be complete, and would call in a likely drop on down to our 154-day moving average in the days/weeks to follow. If seen as expected, we will be looking for technical indications to re-enter the mid-term long side of the market.

Gold Commercial Hedgers

In looking at sentiment indications this weekend, we have the gold commercial hedgers holding a net short position of approximately 108,000 contracts:

Adding to the notes above, the net short position from the hedgers is seen as a bearish technical indication for the gold market. Having said that, the commercials are not holding larger shorts seen near the September, 2017 and January, 2018 price peaks. These tops each saw the hedgers holding well over 200,000 contracts to the bearish side, which was a more obvious bearish indication at those times. Now, they are at least marginally bearish, thought this does support the idea of lower prices into later this Spring.

U.S. Stocks

From my article back in February, I noted that the last decent correction phase was due to materialize for the U.S. stock market, with that decline expected to come from the 45-day cycle, which is shown again on the chart below:

In terms of price, the reversal below the 2773.16 SPX CASH figure (seen on 3/4/19) confirmed the downward phase of this 45-day cycle to be in force, which called for our normal minimum drop back to the 35-day moving average or lower - something that was easily met with the action into the 2722.27 swing bottom, registered on 3/8/19.

Having said the above, we were expecting a bit more weakness for the 45-day cycle, which we did not get. Instead, the SPX has reversed back to make new highs for the larger swing, which confirms our last 45-day trough as the 2722.27 figure. With that, in our daily Market Turns report, we have noted approximate price and time targets in regards to this component.

Stepping back then, the current upward phase of the 45-day cycle is eventually expected to peak our next larger wave, the 90-day component:

The chart above shows the approximate position of our 90-day time cycle, which is going over a top; even said, the peak for this wave is likely to come from higher numbers than already seen. In terms of time, the next trough for this component is due later this Spring, with a decline back to the 70-day moving average eventually favored to materialize. More on all as we continue to move forward.

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.