Gold Price At An Inflection Point

Sunday, September 23, 2018

Last week's action saw gold rallying into mid-week, with the metal pushing up to a Friday high of 1215.80 (December, 2018 contract) - before turning south off the same to end the week flat to slightly higher overall.

gold daily continuous contract chart

Gold Short-Term

For the near-term action, the most dominant short-term cycle in the gold market is the 34-day wave (chart, above), which is currently some 25 trading days along from its last labeled trough, and thus could top again at anytime. In terms of price, the key number here is the 1188.00 figure (December, 2018 contract), which is the downside ‘reversal point’ for the next correction of this component.

With the above said and noted, as long as the metal is able to remain above the 1188.00 figure, then the upward phase of the 34-day cycle will remain intact, with the potential for higher highs in the coming days. Alternately, any reversal below that figure - if instead seen - would infer the next correction phase of this wave to be in force, which would target some test - or break below - the 1167 swing bottom.

Mid-Term Picture

For the stepped-back view, the next larger-degree bottom has been expected to come from the 154 and 310-day cycles, with the approximate position of the larger 310-day component shown on the chart above. That cycle could well have bottomed out at the 1167 swing low - though there is no actual confirmation of the same. For that confirmation, the metal (December, 2018 contract) would need to see a daily close above the 1263.50 figure.

Going further with the above, should a daily close above the 1263.50 figure be seen at any point going forward, then the probabilities would favor additional strength with the 154 and 310-day cycles, with the 310-day moving average or higher acting as a magnet.

Having said the above, any larger rally with the 154 and 310-day cycles - if and when seen - is expected to end up as a countertrend affair (holding below the September, 2017 peak), within a larger bear market. Resistance to the same would be at or into the low-end 1300's - which is around the same 310-day moving average.

Otherwise, any rally that holds below the 1263.50 figure on a closing basis will keep the 154 and 310-day cycles pointing south for now, still with the potential for lower lows - should the 1188.00 ‘reversal point’ (for the 34-day cycle) be taken out to the downside.

With the above, the 'ideal' path would really be for gold to remain below 1263.50 on a close, and to make a push back below the 1167 swing bottom. If that were to materialize, then it would likely see larger-degree divergences in momentum - which would be the best launching point for the next mid-term rally phase.

Commercial Hedger Update

From the comments made in recent articles, the biggest support to the next mid-term rally phase has been the position of the commercial hedgers, which are currently holding some 1,691 contracts to the long side (chart, below):

On the chart above, we can see that when the hedgers are holding a smaller net short position, gold has a strong tendency to rally. Once again, the fact that they are now net long is the strongest argument for a mid-term upward phase (with the 154 and 310-day cycles) to soon assume control. Having said that, price is more important, once again with our key dividing line noted at the 1263.50 figure (December, 2018 contract).

Gold Timing Index

On the flip side to the above, a more bearish argument comes from our Gold Timing Index, which is shown again on our next chart:

Of note again is that our Gold Timing Index has been on a mid-term sell signal since September of 2017 (gold, 1359, with a secondary sell signal arriving back in early-February of this year (gold, 1339). These signals were obviously correct, with the metal dropping all the way down to a low of 1167 back in mid-August.

This indicator is important, as buys/sells with the same have tended to come just after peaks and troughs in the 310-day cycle, which was mentioned earlier. And, since no new mid-term buy signal was seen following the 1167 low, it is questionable as to whether this 310-day cycle has actually troughed, though again more key is the 1263.50 figure on a close.

Going further with the above, in order for a mid-term buy signal to materialize with our Gold Timing Index, gold would need to take out the 1167 swing bottom going forward, and we would need to see our Timing Index forming a 'higher-low' - in other words, registering a divergence. However, that would be only the initial condition for a buy signal, with the actual 'trigger' for the same being a close above the indicator's upper standard-deviation band.

With the above said and noted, it is possible that we could see a mid-term rally phase playing out - but without a buy signal from our Gold Timing Index. However, if that were to materialize, we would expect that rally to end up as a failure, most likely finding resistance around the low-end 1300's. The key dividing line is again noted at 1263.50 on a closing basis; above that, and additional strength should be seen, with the 310-day moving average acting as a magnet. Below it, and a lower low below 1167 could still be seen before any bottom of significance.

U.S. Stock Market Internals

With U.S. stocks - we have been expecting the next mid-term peak to form on or after the mid-September timeframe - which we are obviously now into. We are also looking for a sharp correction to play out into the Autumn months, which is where the next 180-day (i.e., 9-month) cycle is projected to trough.

Supporting the idea of a larger correction phase playing out with stocks is the current action from our 'Mid-Term Breadth index', which is shown on our next chart:

As shown on the chart above, our Mid-Term Breadth index is currently diverging from its most recent peaks - and has also turned south below the +500 level, which is our key dividing line for this indicator. This is the kind of divergence that is present prior to mid-term tops (such as with the 180 and 360-day cycles), and is something that I see as a bearish indication for the stock market heading into the Autumn months. Stay tuned.

Jim Curry

The Gold Wave Trader


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.