Gold Forecast: Secret Message For The Gold Market

Sunday, May 12, 2019

gold forecast

Last week's trading saw gold holding in an upside consolidation, with the metal forming its low in Monday's session with the tag of the 1278.10 figure. From there, strength was seen into a Wednesday high of 1292.80 - before turning slightly lower off the same to end the week.

Gold's Dominant Short-Term Cycle

In our Gold Wave Trader report, we track the 6 to 7 cycles that most influence the price of gold, cycles that have been in existence going back many years. These cycles are then broken down and studied for their statistical upward and downward phases, so that we have some idea of what to expect in regards to future price action.

With the above said and noted, one of the most dominant cycles is the 34-day wave, which our analysis recently confirmed a bottom. Here is a look at the recent highs and lows with that 34-day component:

gold daily continuous contract chart

In looking at the chart above, there are a couple of observations. The first - and most important for the near-term - is that our 34-day channel has made a turn back to the upside, which is seen as an additional confirm that this wave has bottomed. Going further, both the 34-day detrend and momentum indicators were diverging at the recent new price low - which is seen as an overall net positive, and is supportive of additional short-term strength.

In terms of price, the ideal path would be for a minimum move up to the 50-61% retracement zone of 1299-1306 (June, 2019 contract) to be seen in the coming days, though with at least the potential for additional follow-through above the same. Having said that, we have the longer-term 154-day channel still pointing south, and with that there is significant resistance around the upper channel boundary, currently extrapolating to the 1320's, plus or minus.

Mid-Term Gold

For the mid-term picture, the most dominant cycle is the 154-day wave, which last topped in February - and with that has been deemed to headed lower into the late-May timeframe, plus or minus. Here again is that cycle:

In recent months, our analysis called for the February peak to give way to a mid-term correction phase in gold, one which took the metal back down to its 154-day moving average or lower - which has easily been satisfied into the most recent swing bottom. With that, due to the large average variance with this cycle, there is at least some potential that this 154-day trough has already been seen.

Having said the above, there is no actual confirmation that a 154-day bottom is set in place, which would currently require a reversal back above the 1331.00 figure for gold (June, 2019 contract). With that, until proven otherwise, our current assumption is that the upward phase of the smaller 34-day cycle will end up as a countertrend affair, holding below that 1331.00 figure. If correct, then the next downward phase of the 34-day cycle would take the metal back to or below the lows into late-May, and, if seen, would be the odds-on favorite to trough our 154-day wave for a sharp rally into mid-Summer.

In terms of price with the above, holding at or into the low-end 1300's for gold (June, 2019 contract) - if seen - could give way to a drop down to the 1251 figure into late-May or early-June, with that number being the 61% retracement of the last upward phase of the 154-day wave.

For the bigger picture, if gold does form our anticipated bottom with the 154-day cycle into the late-May or early-June timeframe, then the metal should see a nice rally into the Summer months. In terms of price, when forming the pattern of a 'higher-low', the greater-majority of 154-day upward phases have seen rallies of 11.5% or more off the bottom, which gives us at least some idea of what to expect in the months to follow.   

Gold Commercial Hedgers

In looking at gold sentiment, with the action seen last week has seen the commercial hedgers (chart, above) adding another 8,000 contracts to the short side, which brings their current net short total up to 96,359 contracts - with the data current to the 5/7/19 close. At first glance, this would appear to be bearish. Having said that, the hedgers held a much larger short position back in February, which was supportive of the decline phase that followed. Here, I view their current action as more neutral to slightly bearish. It will be interesting to see what they do in the coming weeks, particularly into the late-May or early-June timeframe.

U.S. Stock Market (Update)

As mentioned in a prior article for Gold-Eagle, the mid-term cycles for U.S. stocks are seen as heading higher into the Summer months - though a decent correction phase was scheduled to play out in-between, ideally into the mid-May timeframe, plus or minus. Take a look:

The chart above shows the most dominant short-term cycle in stocks, which is the 45-day wave. As mentioned in a prior article, this cycle was due for a correction into the mid-May timeframe, plus or minus, with the 35-day moving average acting as the minimum magnet to that decline. Having said that, in our report that focuses on the U.S. stock market, we noted that a decline on down to the lower 70-day moving average was also likely to materialize.

In terms of patterns, our assumption has been that the most recent decline for stocks should end up as a countertrend affair - within a larger uptrend into mid-Summer or beyond. If correct, a push up into the low-end 3000's on the SPX is likely to materialize before the next mid-term peak tries to form. Having said that, we are anticipating the largest-percentage decline of 2019 to eventually play out into later this year, one that is likely to take a lot of folks by surprise; more on this as we continue to move forward.

The Bottom Line

The overall bottom line for the gold market is that a short-term rally phase is deemed to be in force, against the backdrop of a larger downward phase into the late-May to early-June timeframe. For U.S. stocks, the overall assumption is that the recent drop is all or part of a countertrend decline, one that will be followed by a push back to new all-time highs in the coming months - before the next mid-term high is expected to form. 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.