Gold's Upcoming Key Price Reversal Date

Sunday, August 5, 2018

Gold's Short-Term Cycles

From the comments made in my last article, the 10 and 20-day cycles looked to have topped at the most recent swing high of 1244.90 - with the confirmation of the same being a reversal below the 1220.30 figure (December, 2018 contract). With that, the next short-term bottom should come from these same two waves, which are strongly favored to trough the larger (and extended) 34-day component, for a rally back to the 34-day moving average or higher in the days/weeks ahead:

gold daily chart

In terms of patterns, the next upward phase of the 34-day cycle may or may not end up as another countertrend affair. This depends a lot on the action from our Gold Timing Index, which I will go into again later in this article. In terms of time, our next key reversal date is set for the August 6-7 timeframe, and - if lower lows are seen into the same - may be the odds-on favorite to set in place our next low for the 10, 20 and 34-day waves.

Mid-Term Cycles

For the bigger picture, the combination of the larger cycles are well into extended area for a low to materialize, now with some focus on the seasonal bottoming window of mid-August to trough the same. The key number for the mid-term remains at the 1277.00 figure (December, 2018 contract); in other words, if taken out to the upside at any point going forward, then the probabilities will favor the next rally phase of the 72-day, 20-week, 154-day and 310-day cycles to be back in force - and which would put the 310-day moving average or higher acting as a magnet (chart, below):

Going further with the above, in looking again at a statistical analysis of the larger 154 and 310-day cycles, the bare-minimum rallies have been in the range of 8% or more off the bottom, having taken at least 24 trading days before completing. Having said that, the average rallies with these waves have been much higher at 16-19%, taking 39 days before the next mid-term peak attempted to form. Thus, once the next mid-term upward phase is confirmed to be in force, these numbers give us a decent idea of what to expect for how that rally will play out.

Commercial Hedgers

In looking again at the COT numbers from last week, the commercial hedgers covered another 18,000 shorts, which puts their current net short total at 47,918 contracts - with the data current to the 7/31/18 close. As noted last weekend, that now drops the hedgers to their lowest net bearish position in over two years - and with that is seen as supportive of the next mid-term rally phase. Here is our chart, showing the net position of the hedgers:

Even with the above, price is the ultimate determiner of the next mid-term rally, and it would take either a reversal back above the 1277.00 figure - and/or a new mid-term buy signal with our Gold Timing Index - to actually trigger that rally. In other words, barring the above, the metal can continue to post lower lows, before the next larger rally begins.

Gold Timing Index

Our key indicator of trend direction for the mid-term picture is our Gold Timing Index (chart, above), which is a sentiment measure for the gold market - and works similar to how the NYSE advance/decline line works for U.S. stocks. That is, when this indicator is on a buy signal - and is not diverging from price - the overall assumption is that any short-term decline phases will end up as countertrend affairs, which should be followed by higher highs, upon completion.

Alternately, when this indicator is on a sell signal (as it has been since September of last year) - and is not showing a divergence - we can expect any short-term rallies to end up as countertrend moves, to be followed by lower price lows, upon completion.

As for the present time, our Gold Timing Index is still showing a divergence from price - which, as noted in past articles, is a technical setup for the next mid-term buy signal. For that buy signal to materialize, we would need to see this indicator closing above its standard-deviation band, something which has yet to be seen - but is something that we will be watching very closely going forward, with the current mid-term downward phase being well into extended range.

The Bottom Line

The bottom line is that at least a decent short-term bottom should be forming for gold, with some focus on the August 6-7 reversal date to complete this trough. What follows should be a rally back to the 34-day moving average or better, a move which may - or may not - end up as countertrend. Should the metal manage to reverse back above the 1277.00 figure at any point going forward, then the same should set in place a mid-term trough, for additional strength into what is eventually anticipated to be a multi-month rally.

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.