Gold Forecast: Gold's Countertrend Decline Complete - Higher Into August

Sunday, July 21, 2019

fine gold

Last week’s trading saw gold holding weaker into Wednesday's session, here dropping down to a low of 1401.30 (August, 2019 contract). From there, a slingshot back to new highs for the larger swing was seen into Friday's session, with the metal running all the way up to a peak of 1454.40 - before backing off the same into the weekly close.

Gold's Countertrend Decline Complete

From the comments made in recent weeks, gold was deemed to be in a countertrend decline phase with the smaller-degree cycles, one which was expected to give way to higher highs, upon completion.

From my 7/7/19 article for Gold-Eagle: "In terms of patterns, due to the configuration of the 154-day cycle, the probabilities favor the current short-term correction phase to end up as a countertrend affair, holding above the 6/11/19 bottom of 1323.60. If correct, then the overall path should favor another push back to or (ideally) above the 1442.90 swing top in the coming days/weeks, a move which would set up yet another short-term peak-and-decline phase."

With the action seen last week, gold's countertrend decline is obviously complete, with the pattern assessment ending up as correct - as the metal broke to higher highs into early-day Friday. With that, the metal is now seen as heading higher into the month of August, where the next decent swing top is due to materialize. Take a look at the chart below:

The above chart shows the 72-day cycle, along with its most recent highs and lows. The next peak of significance is expected to form with this wave, and we have a key turning point date to now focus on topping this cycle - which is coming up in the month of August - the exact details of which are noted in our Gold Wave Trader report.


In terms of Elliott-wave, we knew that the 'contracting triangle' pattern meant that we were in a likely wave '4', which supported the idea of a countertrend correction with the smaller-degree time cycles. With that, the assumption was that higher highs (above 1442) would be seen on the next short-term upward phase, which we are obviously now in.

Adding to the notes above, we should be in the early stages of a wave '5' to the upside, one that should eventually top the 72-day cycle going forward, for what is expected to be the next decent correction phase for the metal into late-Summer or very early-Autumn. That correction is also favored to end up as a (larger) countertrend affair, holding well above the early-May trough, and - if correct - should give way to another strong rally phase into year-end.

Take a look at the next chart:

The chart above shows our largest tracked cycle, which is the 310-day component. This larger degree wave is seen as heading higher into later this year (or later), where the next mid-term top should attempt to materialize. Until then, we expect corrections with the smaller-degree cycles - such as the aforementioned 72-day cycle - to end up as countertrend affairs, to be followed by higher highs, upon completion.

Gold Commercial Hedgers

For the coming month or so, the biggest support to the next decline phase of the 72-day cycle is the current net short position seen from the commercial hedgers, which is shown on our next chart:

With the action seen last week, the commercial hedgers covered about 1,000 shorts, but are still holding their largest net short position of this year. Going further, their current position is about the same as it was at the September, 2017 price peak - though the cycles are in a different configuration than they were at that time. Either way, the net position of the hedgers will eventually be a bearish indication going forward, at least for our next decent correction phase with the 72-day time cycle.

U.S. Stocks

The U.S. stock market - as measured by the S&P500 index (SPX) - is in a heap of trouble short- term. As mentioned in prior articles, the decline seen into early-June was expected to end up as countertrend, to be followed by higher highs into July - for a potential test of the low-end 3000 level on the SPX. This was obviously said and done with the action in recent weeks, with the next decent correction phase then due to materialize with the 45-day cycle.

From my article last weekend: "In terms of time, the 45-day cycle is seen as some 28 trading days along - and with that is at or into normal topping range. Once it does peak, then the probabilities will favor a correction back to the 35-day moving average in the coming weeks, with that decline expected to end up as a countertrend affair, likely holding above the 2874 SPX CASH figure. Stepping back, a countertrend correction with the 45-day cycle in the coming weeks - if seen as expected - should give way to higher highs on the next upward phase."

Take a look at our next chart:

The chart above updates our 45-day cycle to real-time. Of note is the recent turn south in both our 45-day detrend and momentum indicators, which supports the idea of additional weakness with this component. In terms of time, its next trough is due to materialize around late-month, though there is a decent plus or minus variance in either direction.

In terms of price, the current assumption is that a minimum decline back to the 35-day moving average will be seen in the days ahead. In terms of patterns, until proven otherwise the current assumption is that the correction phase of this 45-day cycle will end up as an eventual countertrend affair, holding well above its prior trough from early-June.

Bearish Technical Indications

In our Market Turns report - which tracks the U.S. stock market - we noted several bearish technical signs that were forming, and which were viewed as supportive of a correction with the 45-day time cycle. Take a look at our next chart:

The chart above shows both short and mid-term market breadth, each of which were diverging at the recent new high in price. The last time such a divergence was seen in mid-term breadth was back in early-May, which saw the SPX dropping well over 200 points into early-June. Though we don't expect a decline of that magnitude here, drops into 45-day cycle bottoms can often be surprising, though it should, ultimately, end up as countertrend - with the bigger-degree cycles (i.e., 180-day on up) seen as pointing higher into later this year. 

The Overall Bottom Line

The bottom line for the price of gold is that its recent countertrend decline is deemed to be complete - with the path favoring additional strength in the coming weeks, setting up for a larger percentage correction into late-Summer/early-Autumn. For U.S. stocks, the opposite is true for the near-term, with the SPX favored to be in a countertrend decline phase with the 45-day cycle, with that path favored to end up as countertrend - to be followed by higher highs, before any peak of (mid-term) significance attempts to form. Stay tuned for what could be a very exciting week, in light of the above.

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.