Gold Forecast: Gold Correction Looms - Big Picture Still Bullish

Sunday, August 11, 2019

gold bar and nuggets

Last week's trading saw gold forming its low early in the week, here doing so in Monday's session with the tag of the 1448.80 figure. From there, a straight short higher was seen into Wednesday, with the metal running all the way up to a peak of 1522.70 - before consolidating off the same into the weekly close.

Gold Top, Top, Topping, Short-Term

As pointed out last weekend, the last short-term correction phase came from the nominal 10-day wave, which is the most dominant short-term cycle that we track. That decline was anticipated to end up as a countertrend affair, which was obviously correct - with the metal breaking back to new highs for the larger swing:

For the near-term action, the 10-day cycle is now moving back into topping range, and with that is due for another short-term correction phase. I am battling a bit of a cold bug this weekend, and with that my article will be abbreviated - but to the point.

Gold's Stepped-Back View

The bigger picture for gold is still bullish into at least late-2019 to early-2020, and with that should remain the focus going forward. Even said, within bullish upward phases there are the normal countertrend declines seen in-between, the next one of significance which is due to materialize at anytime. This correction should come from our 72-day cycle, shown below:

As pointed out last weekend, we are forming a fairly clear five waves up from the early-May low, with the completion of wave 5 also looking set to top our 72-day time cycle. Though we don't know what price level will peak this wave, we do have a key reversal level to the downside, which - when broken - would confirm this peak to be set in place. More precise details of this reversal level are noted in our Gold Wave Trader market report.

With the action seen last week, we could well be in a smaller wave '3', inside our wave 5 of 5. Having said that, Elliott fifth waves can be either three or five waves, and thus our reversal levels will take on a much greater importance in the days/weeks ahead.

Stepping back then, the next peak of importance should come from our 72-day cycle. Once that top is in place, then we should be looking at a natural three-wave (ABC) decline phase, but one that sees the largest retracement off the top since the decline into the late-May price trough. As pointed out last weekend, a 50-61% retracement of the prior swing is a normal retracement.

In terms of time, the next low for the 72-day time cycle is projected for the month of September, though we have a precise timeframe for this bottom to play out, inside that window. Take a look at our next chart:

The chart above shows the largest cycle that we track, which is the 310-day component. In terms of time, this wave is seen as heading higher into late-2019 to early-2020, and thus the overall assessment for the mid-term picture remains in a bullish configuration. Once this 310-day cycle does top out, however, a much deeper correction decline is expected into 2020.

With the above said and noted, in terms of patterns, we currently favor the next correction phase of the smaller 72-day cycle to end up as a countertrend affair, holding at or well above the early-May bottom. If correct, a September bottom should give way to a continued uptrend into later this year (or beyond).

Gold Commercial Hedgers

In looking at the latest numbers from the CFTC, the commercial hedgers continue to pile on short positions into the recent strength:

With the action seen last week, the commercial hedgers have added in another 37,000 shorts, which puts their current net short (bearish) total at some 324,325 contracts - with the data current to the 8/6/19 close.

From the comments made in prior articles, the current net short position of the hedgers is seen as supportive of a correction with gold, though we can't use the hedgers to actually time this move - which is why an analysis of the cycles is so important.

Even with the above, the hedgers are holding their largest net short position seen since the July, 2016 price peak - where they were holding a slightly larger position of 340,000 contracts. What followed from the July, 2016 peak into the December, 2016 lows was a plunge of over $250 for the price of Gold. Having said that, though a correction is certainly due here, we are not expecting a decline of that magnitude on the current go-around, though we can't rule out a larger decline than we currently foresee.

The Bottom Line

The bottom line is that gold is still working on an interim price peak, and with that is due for a decent correction off the top in the next 4-6 weeks, a decline which is expected to be the largest seen since the correction into the early-May bottom. In terms of patterns, that move is favored to end up as countertrend, however, to be followed by strength again - and higher highs - on the next swing up into later this year. 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.