Forecast: Gold Price Bottoms Soon…But Higher Into February

Sunday, January 20, 2019

fine gold bars

Gold ended up forming the slightly more bearish pattern of an early-week high last week, with the index hitting a peak of 1296.60, made on a Monday time top. From there, lower prices were seen into later into late-week, with the metal dropping down to a Friday bottom of 1280.10 - before bouncing slightly off the same to end the week. For the near-term action, our outlook remains the same, with gold being in a countertrend correction with the smaller-degree cycles.

Gold In Countertrend Correction

From the comments made in recent weeks, gold was deemed to be in a short-term correction phase, with that decline coming from the 10, 20 and 34-day time cycles, with the 34-day wave shown again on the chart below:

gold daily continuous contract chart

In terms of patterns, due to the configuration of the larger 72, 154 and 310-day waves, the current short-term downward phase is favored to end up as an eventual countertrend retracement - holding above the 1236 figure (February, 2019 contract).  Having said that, the 34-day moving average will normally act as a magnet to the downward phase of this particular cycle, and with that the near-term risk is back to this key moving average in the coming days. Support is around the same level, the 1267-1270 region.  

In terms of time with the above, the next 34-day trough is actually due to materialize at anytime, with its last low made back in mid-November of last year. Having said that, in order to confirm this cycle to have bottomed, gold would currently need to see a reversal back above the 1298.10 figure - a number which we expect to start to drop in the coming days, with the most current numbers posted in our Gold Wave Trader market report.

Gold's Mid-Term Cycles

As mentioned above, a countertrend decline with the 34-day cycle is one that sees gold holding above the 1236 figure (February, 2019 contract). Once the current short-term downward phase is complete, the metal is expected to rise back to higher highs into what is projected to be the month of February. At that point, the larger 154-day wave will be looking for a correction into April or May:

The chart above updates the 154-day cycle to the current action. You can see that we are now at the point where this wave is projected to roll over into mid-to-late Spring, though the ideal path would favor that correction to come from a higher high than 1300.40. Going further, the best 'magnet' to the next rally is the 61-78% retracement range, which encompasses the 1311-1349 level for gold.

Stepping back further, the minimum expected correction into Spring should see the 154-day moving average acting as a magnet, with that key moving average currently at the 1241 figure - but which is dropping slightly each day. Having said that, I have noted the potential for a full re-test of the 1173 swing low from back in August of 2018.

Gold Timing Index (update)

The chart below updates our Gold Timing Index, which is our best indicator of mid-term trend direction for gold:

From the comments made in past articles, our Gold Timing Index will tend to diverge from a new price high or low at mid-term peaks or troughs - even though a signal will not always be generated. Having said that, this indicator offers up a similar inference to the advance/decline line for stocks, in that a push to higher highs - along with price - will normally favor any short- term decline to end up as countertrend, which supports the idea of that being seen with the current 34-day cycle downward phase.

However, if there is a bearish implication from our Gold Timing Index, it is this: the most recent high reading was 122. We have noted that readings of 112 or above often see decent correction phases playing out, one which we are obviously in at the present time. Even said, without a divergence, these declines normally end up as countertrend affairs, giving way to an eventual new high in price following the same - which then forms a divergence. If that is seen - particularly into the month of February - then it would be our best technical signal that the next mid-term decline phase is ready to assume control.

U.S. Stock Market

In our Market Turns advisory, the basic call off the late-December bottom was for a minimum rally back to the 35-day moving average into the January 18th turn with the Bradley indicator. Having said that, this target was later upgraded, and was also mentioned in recent articles for Gold-Eagle:

From last weekend: "the 180 and 360-day waves most likely troughed back in late-December, though we can't rule out some type of re-test of that bottom in the coming weeks. Having said that, our mid-term assumption is that a rally back to the 200-day moving average or higher is likely in progress, though we expect that move to end up as an eventual countertrend affair - due to the configuration of the larger four-year cycle."

In terms of price, as noted last week the 200-day moving average is acting as an upside magnet, due to the configuration of the 180 and 360-day time cycles on the S&P 500 index (or SPX). Here is that 180-day cycle, shown and updated on the chart below:

Of note is that the 200-day moving average is not too far away from the 61% retracement of the prior decline, thus giving us a range of 2713-2741 as an upside magnet to price - as well as a key resistance zone in the coming weeks, where we are looking for a market top to occur with some of the smaller-degree cycles that we track.  

Jim Curry

The Gold Wave Trader


Gold-Eagle provides regular commentary and analysis of gold, precious metals and the economy. Be the first to be informed by signing up for our free email newsletter.

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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.