Gold Forecast: Latest Gold Cycle Analysis

Sunday, June 16, 2019

fine gold

Last week's trading saw gold forming the bullish pattern of an early-week low into support, with the metal hitting a bottom of 1323.60 - made in Tuesday's trading session. From there, strength was seen into later in the week, with the index pushing up to an early-Friday high of 1362.20 - before backing off the same into the weekly close.

Gold's Short-Term Picture

As mentioned in my article last weekend, even though the mid-term cycles were seen as pointing higher into mid-to-late Summer, the move up was not expected to be a straight shot higher - but one with the normal correction phases along the way. The first of these was due to materialize with the smallest cycle that we track, which is the nominal 10-day wave - and which is shown again on the chart below:

In terms of price, in our Gold Wave Trader report we noted that the 10-day moving average was a normal minimum magnet to the downward phase of this wave - which was basically met with the decline seen into last Tuesday. In terms of patterns, due to the configuration of the mid-term cycles, our assumption was that the downward phase of this 10-day wave would end up as a countertrend affair, which also ended up as correct.

With the above then said and noted, the expected path favored higher highs being seen on the next upward phase of the 10-day cycle, which we are now in. We did get the higher price high into early-day Friday, with the metal spiking up to a peak of 1362.20 - though there was also a decent reversal to the downside off the same. Even said, until proven otherwise, the upward phase of this 10-day wave is still deemed to be in force.

Going further with the above, the probabilities seem to favor another try at strength in the coming days, where another short-term peak should try and form, coming as a result of a larger 20-day wave that we track. Decent short-term resistance to the current 10-day cycle upward phase is at or into the 1365-1375 level (August, 2019 contract), and should be worth paying attention to as we head into the new trading week.

The Mid-Term Picture for Gold

For the bigger picture, as mentioned many times in past articles, we knew that the next semi-important low for the gold market was expected to come from the 154-day time cycle - which was projected to trough around the mid-May timeframe, but with a good plus or minus variance in either direction - simply due to the size of this particular wave. Here is that cycle once again, in chart format:

In terms of patterns, our assumption in past months was for the correction phase of the 154-day cycle to end up as a much larger countertrend affair - which meant that its downward phase would remain above the prior 154-day trough from August of last year. From there, we were looking for a minimum push back above the February peak - which we have now seen satisfied with the action into Friday.

Having said the above, with so much time left in the upward phase of this 154-day wave, the probabilities will favor the larger uptrend to remain pointing higher in the coming months, though we can also see decent resistance around the upper 154-day channel - which may limit the near-term upside. However, our view is that any short-term correction phases will end up as countertrend, as we chop higher into mid-to-late Summer.

The Bigger Picture

Stepping back further, something we have not taken a look at in awhile is the larger 310-day component, which is shown again on the following chart:

Of particular interest with the above chart is the fact that the detrend that tracks the 310-day component has recently made higher highs, which is seen as a bullish indication in the coming months. That is due to the strong tendency of this indicator to diverge ahead of price at longer-term tops, and is one of the reasons that we expected the recent downward phase of the smaller 154-day wave to end up as countertrend.

Gold's Biggest Technical Problem

As mentioned in some prior articles, the biggest technical problem going forward is the position of the gold commercial hedgers. Take a look at our next chart:

With the action seen last week, the commercial hedgers have added another 30,000 shorts, which brings their current net short total up to 202,027 contracts - with the data current to the 6/11/19 close. This is their largest net short position seen this year, and is seen as at least a market headwind going forward. Having said that, the hedgers are 'scale' traders, and with that can continue to move into shorts as the market rises - as we have seen them do many times. That is, they have held bearish bets to as high as 340,000 contracts in the past, and they are obviously nowhere near this amount at the present time.

All said then, the mid-term cycles are looking for additional strength in the coming months, though the commercial hedgers seem to be positioning for an eventual decline. The cycles are giving us the approximate timeframe for the next decline to play itself out, and with that our current focus is on the current upward phase of the 154 and 310-day cycles, though we are being more cautious than we might normally be, once again due to the net position from the hedgers. More on all as we continue to move forward.

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.