Gold Cycles Topped – Gold Price Heading Down

Sunday, November 11, 2018

stack of fine gold

Last week's action saw gold forming its high in Wednesday's session, here doing so with the tag of the 1238.40 figure. From there, a sharp decline was seen into Friday, with the metal dropping all the way down to a low of 1207.20 - also managing to end the week at or near the same.

From the comments made in recent articles, the short-term cycles for gold were seen as heading higher - but were looking toppy. With that, the recent action confirms both the 34-day and 72-day waves to have peaked - and with that are deemed to be headed lower into at least late-November. The chart below agrees with this, with both our 34-day detrend and momentum indicators also heading south at the present time:

gold dail continuous contract chart

The most dominant short-term cycle in the gold market is approximately 34 trading days in length, with the last labeled trough seen as the 9/28/18 low of 1184.30 (December, 2018 contract). From there, its upward phase played out into the late-October timeframe, with the metal pushing up to a high of 1246.00 - which held just below noted resistance for the move at the 1260's.

As mentioned above, the downward phase of this 34-day wave was recently confirmed to be back in force. With this cycle at 29 trading days along, we should expect additional weakness in the coming days, mainly due to the configuration of the larger 72-day wave - which is also seen as heading south:

In terms of price with the above, a good chunk of the correction phases of the 72-day cycle (when forming a 'lower-high') have witnessed declines of 5.5% off the top, which - if seen here - would infer a drop back to the 1177 figure or lower. In terms of time, a good chunk of these have lasted at least 17 trading days before bottoming, which would suggest this wave to be headed south into later this month.

In terms of patterns, if the current downward phase of the 34 and 72-day cycles is able to remain above the 1167 swing low, then the next upward phase of these waves could still see a try at the 1260's resistance area (plus or minus), before turning south again. Stepping back, due to technical considerations, any mid-term rally phase has been favored to end up as an eventual countertrend affair.

Gold Timing Index

With the action seen last week, our Gold Timing Index (chart, above) has backed off its recent high reading of 105. As pointed out last weekend, readings with above 110 with this indicator were normally seen near mid-term market peaks, with the recent reading falling just shy of the same.

Even with the above said and noted, the fact that our Gold Timing Index never issued a buy signal following the August bottom meant that its current (mid-term) sell signal was still in effect, with that original signal seen back in September, 2017, and with a repeat sell signal coming back in February of this year. With that, the overall inference has been that any mid-term rally phase would end up as a countertrend affair, one which would give way to an eventual push back below the 1167 swing bottom.

Going further with the above, whether the 1167 swing low from August will be taken out in the coming weeks is speculation for now. Having said that, should that materialize, we would need to be on the lookout for a divergence between our Gold Timing Index and price, which again is our initial setup for a mid-term buy signal. From there, of course, the indicator would require a daily close above its upper standard-deviation band to trigger the actual buy.

U.S. Stock Market

From last weekend: "With the recent action, the upward phase of the 45-day cycle was confirmed to be in force on the SPX. With that, my rule regarding cycles and moving averages and the ideal path favors additional rally in the days/weeks ahead, one which sees the 35-day moving average or higher acting as a magnet. Having said that, in terms of patterns, that move is expected to end up as an eventual countertrend affair."

Current Analysis: As noted in recent weeks, the U.S. stock market (as measured by the S&P 500 index - or the SPX CASH) was looking for a rally, with the key upside ‘reversal point’ noted (in my daily Market Turns report) at the 2710.51 SPX CASH figure. In other words, once that level was traded above, the upward phase of the 45-day cycle was triggered back in force:

In terms of price, my rule regarding cycles and moving averages favored that a tag of the 35-day moving average was going to be seen on the SPX, which last week's tag of the low-end 2800's has obviously met. Even said, a time analysis of this 45-day cycle in stocks favors it to be headed higher into later this month (the reverse of gold), and thus Friday's decline is viewed as part of what is anticipated to be a countertrend affair - to be followed by a push back above the 2815 figure before the next peak of significance forms in stocks.

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.