Gold Forecast: Gold Cycles Down - Moving Into Bottoming Range

Sunday, May 5, 2019

gold bars

Last week's trading saw gold forming its high into mid-week, with the metal pushing up to a Wednesday post-fed high of 1289.40. From there, a drop back to lower lows for the bigger swing was seen into Thursday, here hitting a low of 1267.30 - before bouncing off the same to end the week slightly lower overall.  

Gold's Mid-Term Cyclical Picture

From the comments made in past months, a mid-term correction phase was due to play out with gold, with that decline expected to come from the 154-day cycle, shown again below:

The last trough for the 154-day component was registered back in August of 2018, doing so at the 1186.20 figure. From there, its upward phase was later confirmed to be back in force, a move which projected a minimum rally back to the 154-day moving average - which was easily met with the following action. Having said that, the patterns favored the upward phase of this cycle to remain below the September, 2017 peak - the prior labeled top for that same wave.

Going further with the above, the February, 2019 peak with this wave took the metal well above its 154-day moving average once again, and with that was due for a correction back to the same into the April - May timeframe, which we have obviously seen. In terms of time, there is now some focus on the mid-to-late May region to trough this wave, which is where the detrend projects it to occur. Having said that, with this being a bigger cycle, there is also a large plus or minus variance to contend with.

With the above said and noted, the 154-day cycle is within normal bottoming range, which extends into the late-May to early-June timeframe. With that, we are in 'wait and see' mode for the next low for this component. Right now, the only real way to know whether the 154-day cycle has bottomed would be for a reversal back above the 1331.00 figure (June, 2019 contract) to materialize, and thus below that number and the metal will continue to remain vulnerable to lower lows in the coming weeks.

The Patterns

In terms of patterns, the current decline phase of the 154-day cycle is anticipated to end up as countertrend affair - against the prior 154-day trough from August of 2018. If correct, then the probabilities will favor a minimum push back above the February peak of 1356 on the net upward phase of this wave, though the ideal path would favor a move up to the low-end 1400's in the coming months. This is due to a statistical analysis of this 154-day cycle, where the greater-majority have seen rallies of 11.5% or more off the bottom, when forming a 'higher-low'.

Gold Timing Index

In terms of technical action, as mentioned in our prior articles for Gold-Eagle, our best indicator for mid-term trend direction of the gold market is our Gold Timing Index, which is shown and updated again on the chart below:

Our Gold Timing Index is a combination sentiment/momentum indicator, and gives buy and sell signals following mid-term tops and bottoms. Buy signals with this indicator have normally been followed by mid-term rallies - while sell signals with the same have usually been followed by sharp declines. This indicator is currently on a mid-term sell signal from back in early-March, which has yet to be reversed - and thus remains intact at the present time.

With the current action, our Gold Timing Index is seeing a divergence from the recent new price low, which, as mentioned in prior articles, the initial setup (but not the actual trigger) for a mid-term buy signal. For the next mid-term buy signal to occur, the indicator would need to see a daily close back above its upper standard-deviation band. Since we are looking for a 154-day cycle bottom, the next buy signal in our Gold Timing Index would be seen as an early-bird indication that a low of importance has been seen.

Gold Commercial Hedgers

In looking at other indications of gold sentiment, with the action seen last week has seen the commercial hedgers adding back some of their recently-exited shorts, to the tune of some 31,000 contracts. This brings their current net short total back up to 88,312 contracts - with the data current to the 4/30/19 close:

From the comments made in recent outlooks, the large net hedger short position - seen back in February of this year - was viewed as a firm bearish indication for gold. At the time, I noted that the shorts from the commercials supported the idea of a mid-term correction phase playing itself out in the months to follow, which we have obviously seen with the action since.

As pointed out in more recent weeks, however, the short-covering by the commercial hedgers was starting to be seen as a net positive overall, and with that was viewed as supportive of the next mid-term rally phase. However, with the action seen into last week, this has taken on a slightly more bearish tint, and it will be interesting to see if the hedgers start to cover shorts again going forward, which would be a net plus.

The Bottom Line

The overall bottom line going forward is that we are in the early-end range where a bottom for the 154-day cycle could form. Having said that, there is no confirmation that this low has been seen - and with that the metal will continue to remain vulnerable in the days/weeks ahead. Once this bottom is complete, the metal is expected to see a larger-degree rally playing out into the Summer months, with the potential for this rally to push into the low-end 1400's or better, depending on how the current downward phase ends up playing out. Stay tuned.

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.