Gold Price Gearing Up To Rally?

Sunday, August 12, 2018

Short-Term Gold

For the near-term, the next move for the gold market should be a rally with the 34-day time cycle, which is into extended range for a bottom:

gold daily continuous contract chart

In terms of time, the 34-day cycle is now well into extended territory for a rally to materialize, a rally which is supported by short-term technicals, with both the detrend and momentum oscillators diverging from the recent new price low. Going further, we have the commercial hedgers (more on this in a bit) holding their smallest bearish position in several years.

Having said the above, it would currently take a daily close above the 1231.00 figure (December, 2018 contract) to confirm this 34-day wave to have bottomed - though even an intraday reversal above the 1229.00 figure should be an early indication of the same. Obviously, remaining below these key numbers will keep the metal in its current bearish configuration.

Stepping back, if and when the next 34-day cycle's upward phase is back in force, then the probabilities will favor a minimum rally back to the 34-day moving average, though the same is likely to make a test of the upper (and declining) 72 and 154-day channel line (chart, above). In terms of patterns, it is unknown whether this rally will end up as another countertrend affair.

Mid-Term Gold

For the mid-term picture, the key price level for gold is the 1277.00 figure (December, 2018 contract). Basically, if that number is taken out to the upside at any point going forward, then the probabilities will favor the next mid-term rally phase to be in force, which should come from the combination of the 72-day, 20-week, 154-day and 310-day waves.

In terms of price, the next mid-term upward phase is expected to see a rally in the range of 8-19% playing out, with the 310-day moving average (chart, above) acting as a minimum magnet - as per my 'Cycles & Moving Averages' e-report. In terms of patterns, it is unknown as to whether that move would end up as countertrend, holding below the September, 2017 peak.

In terms of time with the above, the normal low-end rallies for the mid-term cycles have taken at least 24 trading days (approximately 5 weeks) before completing, while the statistical average has been 39 days, thus giving us some initial idea of what to expect in regards to how long the next larger upward phase would be expected to last before peaking.

Commercial Hedger Position

In taking a look at the COT data from last week, the commercial hedgers (chart, above) covered a whopping 22,000 shorts, which drops their current net bearish position down to 25,609 contracts - with the data current to the 8/7/18 close.

From the comments made in recent articles, the fact that the commercial hedgers are holding their lowest net short total in nearly 2 1/2 years is seen as a bullish indication - and supports the idea of a mid-term rally phase playing out with gold at some point in the near future. Having said that, price is still more key - and the metal would require a reversal back above the 1277.00 figure to trigger that rally phase to be back in force.

Gold's Seasonal Pattern

Going further with the above, the seasonal patterns for gold (chart, above) show a bottom around the mid- August timeframe, plus or minus, where the metal has a strong tendency to rally into the first few months of the following year. As with the configuration of the commercial hedgers, this is supportive of the idea of the next mid-term rally phase, once confirmed to be in progress.

Gold Timing Index

Our key indicator of trend direction for the medium to longer-term outlook for the metal is our Gold Timing Index, which is a proprietary measure of sentiment and momentum. This indicator has actually been on a sell signal since mid-September of last year, but with a secondary sell signal seen back in February of this year. We are now waiting to see if a new mid-term buy signal will materialize for the current swing:

Adding to the notes above, there are two requirements for a mid-term buy signal to be seen with our Gold Timing Index. The first is for a divergence to form between the indicator and price, where price makes a new low - and the indicator itself does not. This initial condition has been met with the recent action, with this indicator still showing a slight divergence against the recent new lows with price - though there is no guarantee this divergence will remain intact going forward.

Following a divergence between our Gold Timing Index and price, the actual trigger for a mid-term buy signal is for the indicator to see a daily close above its upper standard-deviation band - which it has yet to do, but is something we are keeping a close eye on going forward, with extended position of the larger downward phase.

The Bottom Line

The overall bottom line is that any daily close above the 1231.00 figure (December, 2018 contract) would confirm a short-term bottom to be in place with gold, which would favor additional strength in the days/weeks to follow. The key figure for the mid-term remains at the 1277.00 figure; that is, a move above the same - if seen at any point going forward - would infer the mid-term cycles to have bottomed, with a rally of 8-19% expected to be in force. Note that these numbers could continue to drop going forward, with the most up-to-date levels noted in our thrice-weekly Gold Wave Trader report.

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.