Gold Cycle And Technical Update

For the mid-term picture, the next low of significance for the gold market is due to materialize at anytime, a bottom that is expected to come from the 20-week time cycle. Having said that, as yet there is no actual confirmation that low is in place, though our key price reversal levels are set in place, and technical action is supportive of the next rally phase for this cycle component.

Short-Term Cycles

In our Gold Wave Trader report, we recently noted that any reversal back above the 1295.00 figure (June, 2018 contract) would be our top indication that a short-term low was in place for the metal, and that additional strength was likely in store. That reversal occurred back on 5/22/18 - and with that the assumption was that the upward phase of at least the 10-day cycle was back in force, and that a minimum rally back to the 10-day moving average was the next stop.

Having said the above, until proven otherwise, the downward phase of the larger 34-day cycle is still deemed to be in force, with the current upside ‘reversal point’ for this wave set at the 1327.00 figure (June, 2018 contract). With that, as long as the upward phase of the smaller 10-day cycle is able to remain below this figure, then the metal can still go back to make lower lows before the bottom for the larger swing is set in place.

The Dominant Cycle In Gold

From the comments made in recent outlooks, the most dominant cycle for the gold market is currently around 20-weeks in duration, plus or minus. The chart below once again updates this cycle, once again with the shaded area being the idealized range for its next trough to form. You can see that, with the most recent lows, we are right into this time region:

Even with the above, cycles can and will bottom outside of their average variance, which is why the use of other indications is needed. With that, our reversal levels give us the best confirmation of when a particular cycle (or series of cycles) has bottomed - and when the next upward phase of the same is back in force

With the above said and noted, until a lower level materializes, any reversal back above the 1327.00 figure (June, 2018 contract) - if seen at any point going forward - would be our best indication that the 20-week cycle has troughed. If seen, then the overall expectation would be for additional strength to play out into mid-Summer, before re-topping this wave for another decline into the Autumn.

In terms of price, if and when the next trough is in place for the 20-week component, then the probabilities will favor a minimum rally of 8% off the bottom, though the statistical average - throughout the history of this cycle - has actually been 16% before peaking. In terms of time, these rallies have lasted an average of 39 trading days before completing - and thus the expectation of a rally into mid- Summer, once the 20-week low is complete.

The Mid-Term Outlook For Gold

As noted above, the next upward phase of the 20-week cycle is expected to take gold higher into mid-Summer (i.e., late-July, plus or minus). At that point, however, this wave should put in another peak, and with that would be expected to give way to another selling phase into what is currently projected to be the month of November, plus or minus.

Stepping back even further - though the picture is less clear the further we attempt to look out - an Autumn bottom would be expected to give way to strength again (and a sharp rally phase) into the first few months of 2019.

Gold Longer-Term

Unlike many other analysts - who favor a 'new bull market' currently in progress for gold - I see any larger rally attempts as countertrend affairs, inside what is viewed as a larger bear market phase. That is due to the fact that most bear markets in gold will normally see a return to 'fair value', based upon the Gold/CPI ratio model (chart, above).

Looking at the above chart, for the metal to see a return to fair-value with the Gold/CPI model, it would currently need to see a drop back to the low-end 800's - which is obviously well below current price levels. A return to the same is where bull markets usually begin, and - until this materializes - the current assumption is that the bear market, which began back in 2011, is still in progress.

Even with the above said and noted, that won't mean that gold can't see sharp rallies going forward - though the overall expectation would be for these rallies to end up as eventual failures, made at or well below the 2011 price peak. If and when a drop back to fair-value is seen, then we will entertain the idea of a bear market bottom forming.

Gold Technicals

From the comments made in recent articles, our Gold Timing Index had been diverging from price action - which is our technical setup for a mid-term buy signal. For that signal to materialize, the indicator first needs to register this divergence - and then needs to close above its upper standard-deviation band.

With the above said and noted, we can see that our recent divergence with the Gold Timing Index has been negated with the recent action, with this indicator having broken down to lower lows along with price action. With that, any potential mid-term buy signal/setup has also been negated, and the same would now have to re-set itself up in the days ahead.

Adding to the above, for our Gold Timing Index to set up for another potential mid-term buy, another divergence would obviously need to form between this indicator and price - which would require a decent short-term rally to play out in-between. We are in the process of a short-term rally right now, and this is something that we will be watching closely going forward, being in the expected range for a bottom to develop with the 20-week time cycle.

In looking at other indications from sentiment, the chart below shows the current position of the commercial hedgers:

With the action seen last week, the hedgers covered another 3,000 shorts, which drops their current net short position down to only -115,575 contracts, with the data current as of the 5/22/18 close. From the comments made in recent articles, the current position of the hedgers is the strongest technical argument for the next mid-term rally phase to soon unfold, courtesy of the 20-week time cycle.

The Overall Bottom Line

With the above, gold is still working on what should be low with the 20-week cycle, though whether that low is yet in place remains speculation - with the best confirmation being a reversal back above the 1327.00 figure (June 2018 contract). If and when in play, the stepped-back view is looking for a rally into mid-Summer, before turning down into another low around early-Autumn.

Jim Curry

The Gold Wave Trader

http://goldwavetrader.com

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.

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