Gold Forecast: Gold Cycles Predicted The Recent Decline

Sunday, September 15, 2019

fine gold bar

Gold continued to push south into last week, with the metal hitting its low in Tuesday's session - doing so with the tag of the 1492.10 figure. From there, a quick spike to the upside was seen into early-Thursday, here running all the way up to a peak of 1532.20 - before falling back towards the lows into Friday's session.

Recapping the Action

From the comments made in my past articles back in August, the overall thesis was that the 'gold cycles were topping' - and thus were projecting lower prices to play out into the early-Autumn timeframe. We are seeing some of that now, with the action in recent weeks, with the metal forming a high of 1565.00 (December, 2019 contract) back on 8/26/19 - then double topping with the high of 1566.20, registered on 9/4/19.

In terms of time, the gold cycles have called the action very well this year, with the first big turn due around the mid-February timeframe, and which was expected to be a market peak. From there, the cycles were projecting lower prices into the month of May, where my articles read 'Gold Cycles Bottoming' - and which did materialize, with the metal forming an early-May low, before a re-test of the same was seen into mid-to-late May.

From a May cycle bottom, a sharp rally was expected to play out into the month of August, which obviously followed - with the metal rallying 280 points from trough to eventual peak. From there, the top for gold was confirmed, and with that the action called for the largest correction seen since coming off that May cycle low - which is currently in the process of playing itself out.

Gold Cycles and Elliott-Wave

With the above said and noted, the current decline is coming from the combination of the 72-day and 20-week cycles. In terms of chart patterns, the 'contracting triangle' seen back in July was indicative of an Elliott wave '4' on the daily chart, and with that was expected to break out to the upside - eventually forming a wave '5' peak. This can be seen more clearly on the chart of the 34-day cycle, which is shown below:

The chart above shows a clear picture of the action in past months, with the 1566.20 swing top confirmed (on 9/5/19) as our wave 5 to the upside. With that, an ABC correction phase is currently deemed to be in force, though there is at least the potential that a peak of a larger significance has been seen.

For now, however, until proven otherwise, we are favoring the current decline to end up as a countertrend affair - against a larger upward phase into the late-2019 or early-2020 timeframe.

Going further with the above, if the wave action is correct, then the most recent decline is either all - or part of - the first wave down, or wave 'A' of an anticipated ABC (countertrend) affair. In terms of time, we have an exact timeframe for the next turning point bottom to play out, with the precise details noted in our thrice-weekly Gold Wave Trader market report.

Following my rule that a cycle will revert back to a moving average of the same length better than 85% of the time (i.e., 'Cycles & Moving Averages', 2013), the most recent decline has seen the 34-day moving average acting as a magnet - and which has been met with the action into the 9/10/19 bottom.

Having said the above, due to the configuration of the larger 72-day cycle, the ideal path favors additional weakness in the coming weeks, with the lower 72-day moving average acting as the magnet. That key moving average is currently at the 1455 figure (December, 2019 contract) - but is rising daily:

Going further with the above, a key support zone - following the completion of five waves up - is the 38-50% retracement level of 1425-1458 for gold, with the upper-end of this range being at or near our 72-day moving average. That is, if tested in the coming weeks, this would be an area to be on the lookout for the next 72-day cycle trough to materialize. Having said that, there is always the potential for a larger decline to play out.

Gold Commercial Hedgers

In looking at sentiment again this weekend, a slight positive note is that the commercial hedgers for the gold market have covered approximately 32,000 shorts into the recent weakness. Take a look at the chart below:

With the action seen into last week, the hedgers have dropped their net short position to 305,611 contracts, with the data current to the 9/10/19 close. As mentioned in past articles, the net bearish position from the commercials was seen as bearish for the metal - and with that was supporting evidence for our correction phase of the 72-day time cycle.

Having said the above, the commercial hedger short-covering - while a mild net positive - is not seen as a bullish indication going forward, as the hedgers as a group are scale-traders, and will slowly move into shorts well ahead of price peaks. Conversely, they will start to cover well ahead of price bottoms, and we are seeing some of that now.

Gold's Overall Outlook

The bottom line for gold is that we are currently in the downward phase of the 72-day (and 20-week) cycles, which are expected to bottom out in the early-Autumn timeframe. In terms of patterns, this move down is favored to end up as a countertrend affair, and - if correct - should give way to higher highs on the next swing up into later this year, before forming what is expected to be a much more important peak.

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.