Gold Price Working On Cycle Bottom

Sunday, May 6, 2018

silver and gold

The gold market is in the process of forming a cycle bottom, though whether that low is yet in place remains speculation at the present time - and with that we are patiently awaiting confirmation of the same.

As mentioned in some recent articles, the main cycle that is currently controlling prices is the 20-week wave, with that cycle now at or within normal bottoming territory:

gold daily chart

As we can see on the chart above, we are moving into bottoming range with the 20-week cycle, though it is too early to suggest this wave to have troughed. There has been some focus on the May 4th timeframe (plus or minus a day or two in either direction) to end up as the next low for the same, with the lowest level thus far coming on May 1st.

With the above said and noted, until a lower level materializes, gold (continuous and June, 2018 contract) would currently need to see a reversal back above the 1369.50 figure to confirm a low for this 20-week wave to be set in place. Obviously, that number is well above current price levels, though we do expect this reversal level to drop sharply going forward, depending on the price and technical action that is seen in-between.

Going further with the above, the next low for the 20-week wave should also end up as the bottom for the smaller 72-day wave, which is shown again on the next chart:

Of particular note with the above chart is that our 72-day 'oversold' indicator - which is shown on the lowest panel in red - has recently spiked above its upper reference line. This action is normally seen closer to cycle bottoms than tops, though it won't guarantee this low is set in place. Note that - like the VIX for the SPX - this indicator moves inversely to price action.

For the shorter-term picture, the most dominant cycle for the gold market is the 34-day wave, which is now moving into extended range for a bottom, with the same recently making lower lows at the 42 day mark:

Once the next 34-day trough is set in place, then the minimum short-term rally should see the 34-day moving average or better acting as a magnet; this is based on my rule that a dominant cycle will return to a moving average of the same length better than 85-90% of the time. Adding to this, the greater-majority of the upward phases of this wave have seen rallies of at least 4.4% before peaking, lasting an average of 18 trading days before doing so, giving some added visibility of what to expect in the near future.

With the above said and noted, there is a good shot that the bottom for the 34-day cycle has either formed - or else has a marginally lower low still out there in the days ahead, made at or into our early-May bottoming window. If correct, then we should see a rally back to the 34-day moving average or higher into what is looking to be a May 22nd turning point high. From there, we see the potential for another short-term bottom to form into the late-May or early-June timeframe.

Regardless of the above, the stepped-back view is looking for a rally with the 72-day and 20-week cycles into the Summer months, which is in line with our original 2018 forecast path. In terms of price, the normal low-end statistical rallies with these waves have been at least 8% off the bottom, though the average have actually been 16%, lasting an average of 39 trading days from trough-to-peak. This gives us some idea of how the expected rally should play out into the Summer of this year, once the next trough is in place with these larger cycles.

In looking at technical indications this weekend, our Gold Timing Index (chart above) has diverged from the recent new price low - which is the initial setup for a mid-term buy with this indicator. As shown on our chart, recent signals are marked with red and green lines, and have proved to be very accurate in calling the mid-term trend with gold. There are also short-term signals within the same, which we post in our Gold Wave Trader report (published 3 times per week). The last such signal was a sell signal, coming at the 3/26/18 close (i.e., 1360, continuous contract).

Adding to the notes above, for our next mid-term buy signal to actually develop, our Gold Timing Index would need to see a daily close above its upper standard-deviation band, something which would likely require a decent rally to play out first - with that rally expected to come from the aforementioned 34-day time cycle. We will be keeping a watchful eye on this going forward, should it develop.

In looking at additional technical indications from sentiment, we can take a look at our next chart:

In looking at the COT numbers from last week, the commercial hedgers covered approximately 30,000 shorts - with their current net position now at 131,872 contracts, which is their lowest position since the December, 2017 price trough. I see this as a bullish indication going forward, and is generally supportive of a rally phase in gold, though, as noted earlier, whether this cycle low is yet in place remains speculation.

On the chart above, shaded areas show the commercial hedger positioning at prior lows for the metal. To the far right, you can see that we are at or nearing levels that have marked prior bottoms. As mentioned, I see this as supportive of a rally - which is expected to come from the 72-day and 20-week cycles - though we are still waiting to see if and when this bottom is confirmed in place, and/or whether our Timing Index should a new mid-term buy signal. Stay tuned.

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.