Gold Cycle And Technical Report

Sunday, April 14, 2019

fine gold

Gold started last week in rally mode, with the metal pushing up to a high of 1314.70 - made in Wednesday's trading session. From there, a decline was seen into late-week, with the metal dropping down to a Thursday low of 1392.30 - before consolidating the action to end the week.

Gold Cycles, Short-Term

From the comments made last weekend, gold was looking set to rally short-term - due to the configuration of the 10-day cycle, which is shown again below:

gold daily continuous contract chart

In terms of price, the minimum expectation for the rally phase of the 10 and 20-day cycles was for a tag of the 10 and 20-day moving averages, which was easily met. Having said that, the 61-78% retracement zone of 1313-1321 was noted a normal upside price magnet, which was also hit during the early-week strength - with the move stalling at or into the same.

With the above said and noted, the short-term picture is a bit fuzzy at the present time, though the downward phase of the 10-day wave currently looks to be in force. If the same is able to remain above the 1284 (June, 2019 contract) swing bottom, then another try at strength could be seen in the coming days - though the move is still anticipated to end up as countertrend, against a mid-term downward phase.

The Mid-Term Picture for Gold

From the comments made in past months, the most dominant mid-term cycle for gold is currently the 154-day wave, and is shown again on the chart below:

As mentioned earlier this year, the next mid-term correction phase was expected to come from this 154-day component, which was later confirmed to be in force. In terms of price, our overall expectation has been that a drop back to the 154-day moving average or lower would be seen before this wave troughed, with the next low for this component projected for the month of May - though with a large plus or minus variance in either direction.

With the configuration of this 154-day cycle, the overall assumption has been that any shorter term rallies would end up as eventual countertrend affairs, and would be followed by lower lows back to the 154-day moving average or lower. That remains our outlook at the present time, with the mid-term picture looking for additional weakness going forward - even though it does not have to be a straight shot down. In fact, our assessment has been that the decline into the 154-day trough would end up as more of a choppy-to-down affair.

Going further with the above, the patterns do favor the downward phase of the 154-day wave to end up as an eventual countertrend affair - against a longer-term uptrend with the (not shown) 310-day component, which is the largest cycle that we track. Basically, the probabilities favor the downward phase of the 154-day cycle to remain above the prior 154-day trough from August, 2018. If correct, a sharp rally should play out into the Summer months, with a more exact path for that rally noted in our Gold Wave Trader report.

Gold Timing Index

In terms of technical action, our best indicator for mid-term trend direction of the gold market is our Gold Timing Index, which is shown on the chart below:

Our Gold Timing Index is currently on a mid-term sell signal from early-March, which is still intact at the present time - and is supportive of the mid-term downward phase of the 154-day time cycle.

This particular indicator has done a very good job at catching most of the mid-term tops and bottoms in recent years, and offers up a similar inference to that of the NYSE advance/decline line for the U.S. stock market. Basically, when it is on a buy signal, we expect short-term declines to end up as countertrend, to be followed by higher highs, until a divergence and new sell signal forms. Vice-versa, when it is on a sell signal - as it is now - we are looking for short-term rally phases to end up as countertrend, to be followed by lower lows.

If there is a net positive with our Gold Timing Index, it is the fact that the indicator is currently showing a divergence from the last new price low - which is our initial setup for a buy signal, Having said that, it would take a daily close back above the upper standard-deviation band to actually trigger any mid-term buy - and we are not even close to that at the present time. More likely is that additional divergence in the coming weeks will be required, before the next mid-term buy appears.

Gold Commercial Hedgers

In looking at sentiment indications this weekend, we have the gold commercial hedgers holding a net short position of approximately 132,000 contracts:

From the comments made in recent months, the larger net short position from the hedgers was seen as a bearish technical indication for the gold market, and thus has been seen as supportive of the current mid-term downward phase with the 154-day cycle. Having said that, the commercials are not holding the much larger bearish bets seen near the September, 2017 and January, 2018 price peaks - which supports the idea of a countertrend decline with that same 154-day wave, one that remains above the August, 2018 price low.

The Bottom Line

The bottom line for gold is that our mid-term downward phase is still seen as in force, and should remain so well into the month of May or later. At some point, we will start to see technical indications of a bottom forming with the 154-day cycle, which should give way to the next upward phase of this wave into the Summer months. From there, we expect another decent decline phase to play out, before giving way to a sharp rally again into year-end. 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.