Gold's Mid-Term Bottoming Process

The action last week saw gold dropping down to lower lows for the larger swing, with the metal forming its bottom on Tuesday with the tag of the 1238.80 figure (August, 2018 contract). From there, a decent bounce was seen into Thursday, here pushing up to a high of 1262.40 - before backing slightly off the same to end the week.

Gold's Short-Term Cycles

For the short-term, the dominant cycles are the 10, 20 and 34-day waves, with the upward phasing of at least the 10 and 20-day cycles currently seen as being in force off the 1238.80 swing low. In terms of patterns, with the current configuration of the larger-degree waves, the assumption is that this rally will end up as a countertrend retracement, and - once complete - should give way to lower lows on the next short-term downward phase that follows.

The Mid-Term Cycles

For the mid-term picture, the next mid-term trough is still expected to come from the 72-day, 20-week, and 154-day cycles - each of which are into extended range for a trough to form, with the above chart showing the larger 154-day component. Having said that, it would currently take a reversal back above the 1313.00 figure (August, 2018 contract) to confirm these waves to have bottomed, though I expect this number to drop sharply at some point going forward - but for now remains locked in place as our mid-term dividing line.

With the above said and noted, the assumption is that the current short-term rally will end up as a countertrend affair - against the larger upside ‘reversal point’ of 1313.00. If correct, lower lows would follow, setting up potential divergence in our Gold Timing Index, which is shown again on our next chart:

Gold Timing Index

For the mid-term picture, our best indicator of trend direction for the gold market is our (proprietary) Gold Timing Index. From the comments made in past articles, a divergence between price and our Gold Timing Index is the initial setup for a mid-term buy signal. Once this divergence appears, the actual signal comes with a daily close above the upper standard-deviation band. And, since neither of these setups are in place at the present time, lower lows for the bigger swing can continue to materialize before the next mid-term trough forms.

What happens with our Gold Timing Index going forward is key going forward. This is due to the fact that buy and sell signals with this indicator tend to correlate very well with turns in the largest cycle that we track, the 310-day component:

Adding to the notes above, the next buy signal with our Gold Timing Index is likely to indicate a rally of 19% or more off the bottom is in progress - which is the average statistical upward phase for the 154-day cycle, and the lower-end range for the larger 310-day component. In terms of time, the normal minimum rally with a mid-term upward phase has lasted at least 24 trading days before completing, while the average rallies have taken 39 trading days.

The bottom line for the mid-term is that either (1) a move above 1313.00 on the August contract would confirm the next larger upward phase to be back in force, though (2) the ideal path would favor lower lows to form first, thus setting up a divergence - and a potential mid-term buy signal - in our Gold Timing Index.

Seasonal Patterns

The chart above shows the average seasonal pattern for gold. Inside this pattern, gold tends to bottom around mid-to-late Summer, before turning stronger into later in the year - usually extending that rally into the Spring of the following year. In terms of time then, the next key area of focus is on the aforementioned mid-August timeframe, which is the next projected seasonal bottoming window. That is, should the current bounce be followed by lower lows into that timeframe, then it may be the ideal spot to bottom the metal for a sharp rally of several months or more - before setting up another mid-term peak.

Gold Commercial Hedges

As mentioned in recent articles, the best support for a mid-term rally phase for gold (with the 72-day and 20-week cycles) is the current position of the commercial hedgers, which are holding near their smallest net short position seen in recent years. With the holiday-shortened week last week, we won't get a look at the new COT data until Monday of this week, though I don’t expect to see much of a change in the most recent numbers.

The Bottom Line

The overall bottom line for gold is that a short-term rally is seen as being in force for the smaller-degree cycles, but with a reversal above the 1313.00 figure needed to confirm the same for the larger-degree waves. Otherwise, holding below the same favors lower lows for the swing first, before setting up this bottom - with the ideal path looking for a mid-term buy signal with our Gold Timing Index in the days/weeks ahead. Stay tuned.

Jim Curry

The Gold Wave Trader

http://goldwavetrader.com/

http://cyclewave.homestead.com/

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