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Gold Price Reversal
Gold Price Reversal
The Gold market continues to be lethargic. Two weeks ago, negative rumblings about Deutsche Bank pushed Gold higher out of the Half Cycle Low. But the move quickly stalled on a gold price reversal, ensuring that the current Daily Cycle (DC) would remain Left Translated.
Gold’s current sluggishness is not unexpected, however. 18 weeks into any Investor Cycle should see sellers largely controlling the action, and I’d expect that to be the case with Gold until it finds an Investor Cycle Low (ICL).
Considering the advanced age of the Investor Cycle (IC), it’s impressive how well Gold has held up. And it’s a boost to bulls that the Miners and Silver are following suit with relative strength of their own. The broader precious metals complex appears to be consolidating its massive gains from early 2016 via time, rather than price, and that’s decidedly long term bullish.
The Miners, in particular, provide a case in point. GDX rose 120% in 6 months to start 2016, and in the 2 months since topping have retraced a relatively meager 20%. I’ve discussed the volatility of the Miners frequently, so readers will know that such relative strength during a move into an ICL is extremely bullish for the intermediate and longer terms.
It’s easiest to see the Gold’s bullish consolidation via time on the Investor Cycle chart. Gold topped 12 weeks ago and has a failed Daily Cycle behind it, yet is down only $70 from the IC peak. It’s a classic bull market consolidation of the huge six-month rally, and is a significant change in character from what we all lived through during Gold’s bear market.
A Gold Price Reversal is on the way, make no mistake about it, but we may need to be patient as we wait for it. Gold could need another full Daily Cycle lower before finding its ICL, and that would mean another 4-5 weeks of declines. Rest assured, however, that the bull market trend is firmly established. During the next series of higher IC’s, I expect the general public to again pay attention to Gold.
Trading Strategy
Long term investors should already be holding a strong core portfolio. Short term fluctuations in the Gold Price market should only be viewed as an opportunity to add to long term positions. If you’re under invested, I personally would not wait for a Cycle Low, this price level is more than attractive.
Traders should be flat or short this market currently. There is a real possibility that we’re going to see a large stop run below $1,305 on gold and the Sept 1st lows in the precious metals miners. Within 5 to 10 trading days however, we should see a Cycle Low and reversal form, providing an excellent opportunity for traders to get Long this sector for what could be a promising new Daily and Weekly Cycle.
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Bob.
Gold Cycle Running Out of Steam
I predicted that gold would rally last week up to the $1,155 area, and was also equally unsurprised when it was rejected the first time by that declining (see green trend-line on chart) resistance line. Those are standard or obvious Cycle pivot points, but how it continued lower yesterday to fall well below the 10 day moving average was not a “typical” development if you’re a supporter of the bull case in gold.
This is after-all supposed to be the most bullish period for gold, the heart of the 2nd Daily Cycle is where most of the solid gains are made during an uptrend. We wanted to see only a brief, possibly just an intra-day break below the 10dma, followed by a rally to smash through that trend-line. There is obviously still some time left for gold to rally, but the point is that it has taken up far too much of the 2nd Daily Cycle while remaining well below recent Cycle highs. During a series of bullish Cycles, new highs are made quickly and sustained relentlessly, they certainly do not languish like this.
So as I covered this past weekend (premium report) and warned then, I’m telling the bulls again to watch out. This is playing out just as past bear market Cycles have. That’s four years’ worth of Cycles and each one behaved and performed almost like this one has so far. And sadly we do not see any bullish divergences from Silver or the precious metal miners to hang some hope on. As I have consistently maintained, during any bear market we must assume surprises will move to the downside and that the trend will push the asset lower.
Remember though, Cycles depict the natural ebb & flow process of an asset. And in the very short term, a bounce out of a Half Cycle Low is now due and expected. Another test in the coming days of that resistance line is likely, but there is a very good chance that same resistance area will cause gold to fall sharply towards the next Daily Cycle Low. If the bulls are serious and want to significantly change this outlook, then they need to smash through the resistance area and make new Cycle highs above $1,156. Until that point, please be mindful of the dominant trend, it is much more powerful than us all combined.
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Gold Miners Are Saying It’s Time
Back in early July I published the view that we needed “Just a Little Bit More“ downside to complete the gold Investor Cycle. All of the indicators and tools we used to spot these turns were firmly in place and it had become a matter of cleaning out the remaining bulls before turning. At the time of publishing, gold stood at $1,130, and my expectation was for one more decline, below $1,110, in order to complete the Cycle and form a major Investor Cycle Low.
Well, that expectation has been fulfilled, and with the strength seen in the miners these past few days, we can say with a very high degree of confidence that the Gold Weekly (Investor) Cycle has turned. Judging by the gold chart alone, that call might seem a touch premature. But it’s the gold miners that almost always lead the gold Cycle out of significant troughs. And whenever we see this much front-running strength within the miners, around these expected Gold Cycle Low timing bands, then it pays to be a little aggressive and expect that gold will quickly follow suit.
A word of caution though, the miners are short-term overbought. Anyone buying in here should be aware that a fast 1 to 2 day drop, back below the 10dma, is actually quite possible and within character. Looking longer term, throughout this powerful bear market, we see these massive counter-trend rallies form in the precious metals miners. From the chart below, we see the miners respond to Gold’s Investor Cycle Lows and they rally clearly and quickly back towards the mean, often well before the next Gold Cycle top occurs. The typical Cycle, over 4 to 8 weeks, will see GDX rally 30% to 40% off the very bottom, giving you an indication of the potential still ahead.
To be clear however, this is not a call on the great gold Bear Market, it’s grip on this asset remains firm…for now. What we can expect however is for gold to rally for 4 to 6 weeks and to the point where most bear market counter-trend rallies have stalled. It’s at that point where we will see gold’s true, longer term intentions.
The Financial Tap publishes two member reports per week, a weekly premium report and a midweek market update report. The reports cover the movements and trading opportunities of the Gold, S&P, Oil, $USD, US Bond’s, and Natural Gas Cycles. Along with these reports, members enjoy access to two different portfolios and trade alerts. Both portfolios trade on varying time-frames (from days, weeks, to months), there is a portfolio to suit all member preferences.
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