Gold Forecast: Gold Price In Topping Range And Stocks In Correction Mode

Sunday, August 4, 2019

gold analysis

Last week's trading saw gold holding weaker into Thursday's session, with the metal dropping all the way down to a low of 1412.10 (December, 2019 contract). From there, however, a sharp rally was seen into Friday, here running all the way up to a peak of 1461.90 - before backing slightly off the same to end the week. 

As pointed out in prior articles, gold's recent downside consolidation was deemed to be a countertrend affair - inside a larger uptrend with the mid-term cycles. With that assumption, the overall outlook has called for higher highs into the current month of August, where we are now on the lookout for the next decent swing top.

Gold's Near-Term Outlook

As noted in my article from last weekend, the downward phase of the 10-day cycle was seen as in force, with this wave at or into bottoming territory:

From last weekend: "In terms of patterns, due to the configuration of the larger 34-day wave, the current downward phasing of the 10-day cycle is expected to end up as a countertrend affair - holding above the 1384 swing bottom, which is the last labeled trough for the 34-day component. If correct, then its net upward phase should see a push back above the 1454 swing top in the coming weeks, where a semi-important peak is projected to form."

Current analysis: As noted last weekend, the recent downward phase of the 10-day cycle was expected to end up as a countertrend affair, and - if correct - would be followed by higher highs into the current month of August, which we are now working on. New highs in the days/weeks ahead should end up topping our larger 72-day component, which is shown again on the chart below:

On our 72-day cycle chart we can see a clear Elliott five waves up currently in progress. When the current wave '5' up completes, we should expect to see the largest percentage correction seen since the decline into the early-May price trough, which is the last labeled low for this component - as well as being our last bottom for the larger 154-day cycle. In terms of time, we have a key turning point date for the current turn, with more precise details of noted in our thrice-weekly Gold Wave Trader report.

Stepping back, once the 72-day cycle does top out, as noted above we should be looking for the largest percentage decline seen in several months to play out, into what is looking to be the month of September. In terms of price, a 50-61% retracement of the entire move up is the normal expectation, a move which is expected to end up as countertrend - holding above that early-May bottom.

In terms of price, until a higher level materializes, it would currently take a reversal back below the 1397 figure (December, 2019 contract) to confirm the next downward phase of this 72-day cycle to be back in force. However, we expect that number to rise markedly in the days ahead, with the most up-to-date figures always posted in our Gold Wave Trader report. 

Stepping back then until proven otherwise, the next downward phase of the 72-day cycle is expected to be followed by higher highs into later this year or beyond, due again to the position of the larger-degree 154 and 310-day cycles, with the 154-day wave again shown below:

In looking at our chart above, we can see the last 154-day trough came about where it was projected, which was the month of May - but with a decent plus or minus variance in either direction (i.e., the bigger the cycle, the larger the plus or minus variance). This wave is seen as heading higher in the coming months, due to the configuration of the even-larger 310-day cycle. From whatever high that ends up forming with this 154-day wave (i.e., late-2019 or beyond), we should see the next mid-term decline phase.

With the above said and noted, the overall assumption is that a correction with the 72-day cycle into September or later will end up as countertrend, holding above the early-May trough - and with that should be followed by higher highs, before forming the next larger-degree price peak.

Gold Commercial Hedger Position

As noted in recent weeks, the commercial hedgers are currently holding a very large net short position, which is shown on our next chart:

With the action seen last week, the hedgers made no real net change, and are currently holding a net short (bearish) position of some 287,000 contracts. From the comments made in recent articles, the current net short position of the hedgers is seen as supportive of a correction with the 72-day cycle in the next month or so - even though that move is expected to up as a countertrend affair, to be followed by higher highs, upon completion.

U.S. Stocks (Update)

As for the U.S. stock market (as measured by the SPX), the market threw us a bit of a curve ball with the action last week, with the most recent new price high being followed by a reversal below our key 2973.00 SPX CASH figure. With that action, this confirmed the downward phasing of the larger 90-day cycle to be back in force, with that cycle shown on the chart below:

In terms of price, taking out the 2973.00 SPX CASH figure to the downside triggered a drop on down to the 70-day moving average, which was easily hit with the decline into late last week. With that, the next semi-important bottom is expected to come from the combination of the 45 and 90-day cycles, though from what price level remains speculation.

Going further with the above, a slight net positive is the fact that our 90-day 'oversold' indicator has moved down below its lower reference line, something which was last seen prior to the June bottom for stocks. Even said, this indicator can trough well ahead of the actual price low. 

For the bigger picture, the current correction with stocks is favored to end up as an eventual countertrend affair, though it could have more to run before bottoming. Once complete, the next upward phase of the 90-day cycle should take the SPX back above the prior swing high (3027) in the coming months, due again to the configuration of the larger-degree 360-day cycle:

In terms of price, as mentioned in prior articles from past months, we had an open upside target with this 360-day cycle to the 3003.29 - 3112.42 SPX CASH region, which was recently met. Having said that, there is an additional (higher) open target from this component, which we think will eventually be met in the coming months, following the completion of the current decline phase with the smaller-degree 90-day component.

The Bottom Line

The overall bottom line is that the price of gold is moving into topping range in the days/weeks ahead, with a correction of significance expected to play out into early-Autumn - a move which is expected to end up as countertrend. As for the U.S. stock market, the correction phase of the 90-day cycle is now deemed to be in force, which tends to favor additional weakness going forward, though the move down is eventually expected to give way to new all-time highs again, upon completion.

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.