From the inception of gold's secular bull market in 2001, gold has completed 6 ABCD wave patterns which I have graphically detailed on my website. This precious metal is now in the final process of completing its 7th C-wave which characteristically concludes with parabolic bravura.
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Click on the chart to ENLARGE
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I thought it would be interesting to examine the concluding weeks of the preceding 6 C-waves for some insight into how our current situation might play out, and I decided to use the vehicle of the US Dollar for this study.
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It turns out that each and every one of gold's previous C-waves concluded simultaneously with a precipitous drop in the US Dollar Index. And as the US Dollar has recently taken out two key support levels and appears to have begun the swift crash process last week, it is not a likely coincidence that gold has moved decisively above $1500 and appears headed for $1600 in the month ahead.
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On the 10 year chart of the US Dollar I have identified the date of each of gold's previous C-wave tops and used various colors to highlight the dollar's associated price descent. I studied the details of each occurance and noted a 'back of the envelope' calculation regarding the speed that the US Dollar crashed. The dollar's final decline was typically between 20 and 25 cents per day over a period of 4 - 5 weeks. Using different words, the US Dollar fell $1 every 4 - 5 days for a period of many weeks while gold soared to new heights. Every time!
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The takeaway from this study, I suppose, is the assurance that a crash in the US Dollar is the mechanism that fuels each C-wave parabolic conclusion and the observation that the current US Dollar crash behavior has likely just gotten underway in the past few days. This implies that there are still several weeks left on the shot clock for gold and that this C-wave is no where near over.
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Click on any chart to ENLARGE
A quick look at the daily chart of the U.S. Dollar Index (DXYO) with any eye on the True Strength Index (TSI) indicator for a read on current momentum shows a situation that is bearish and likely to persist for some time.
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This weekly chart of the World Gold Index (XGLD) has been updated with the price performance of gold since my article Fibonacci Gold was written 3 weeks ago. At that time gold was $1429 and it appears that recent price action is headed straight for the $1600+ target with several weeks to work with.
Finally, a bit of housekeeping. This spreadsheet details the current status of the service Tomorrow's Trades (Today!) that I started 2 months ago. Each of the 20 trades was announced the evening before the buy limit order was executed, and provided the suggested limit order selling price.
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To date 17/20 (85%) of the trades have performed as designed. The average gain per trade was 11.26% and the average holding period of each trade was 14.53 days.
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I am assessing some new trade ideas and will make them available in the very near future.
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John,
ReplyDeleteAre you still looking for gold to maks a daily cycle low ,before it takes off on the final C-wave ,or is that now off the table .
Hi Bob - well, as gold and silver have been up 7 consecutive day I am feeling a bit gun shy at the moment and looking for a mild setback sometime this week. The gold and silver daily charts sport negative divergences that are begging to be resolved. I am not putting much analysis into the daily cycles, as it increasingly appears that gold has entered a final runaway move.
ReplyDeleteLove your work, John. One point of clarification:
ReplyDelete"The dollar's final decline was typically between 20 and 25 cents per day over a period of 4 - 5 weeks. Using different words, the US Dollar fell $1 every 4 - 5 days for a period of many weeks..."
So at that rate, the US dollar would be worth $0 in 4-5 days. Not sure that's what you meant to say here, but couldn't figure out exactly what you were trying to say.
Keep up the great work!
Ok, I think I figured it out. You're just missing the decimal point. I think what you meant is that the dollar fell 0.20 to 0.05 CENTS (or 20 to 25 basis points) during these waves.
ReplyDeleteWhen do you think the current waterfall decline in the dollar index started? I'm trying to project out where to start counting the 4 to 5 weeks. If it started a few days ago, I'm guessing this C wave takes us into the 2nd or 3rd week in May?
Hi again John--if gold has entered its final runaway move ,what are your thoughts on silver-Seems if gold marches on silver will also .Can silver go to the mid-fifties or more if gold takes off big time or do you think silver will lag behind since its had such a great run of late.
ReplyDeletePersonally unlike most, i feel silver along with gold could really surprise a lot of people in the next month or so.just seem everyone is looking for a big correction , sure they may correct some but i believe it will be very short and not that big of one.Every Time there is a pull back big time buyers are coming in on the dips and move them right back up in short order.
Hi SilverLeaf - thank you for your comments. About the US Dollar decline, I think I meant exactly what I said (with no error in the decimal point). If the dollar falls from $76 to $72 over the course of 20 trading days, it falls on average 25 cents each day (.25 X 20 days = $4.00). In any event, for the world's reserve currency to fall *that fast* for several consecutive weeks is a sign that something is seriously wrong.
ReplyDeleteIt could well have begun last Tuesday and if we count 25 trading days forward we get to May 23 which, coincidentally, it the date my Fibonacci Gold article projected.
Hey Bob - you ask a great question and I sure do not have the answer. Quite some time ago I projected silver to $46 and now its there. If this 2011 wave concludes like any C-wave other than the one in 2006, silver will go much higher than $46, as you suggest. If like 2006, silver will take a hard fall down to support at $36 and come back to $46 at the finish line with gold.
ReplyDeleteIf silver does keep going and makes it to, say, $55, that is not quite a 20% gain above $46.68. Forgive me, but big deal. 4 or 5 of the 17 trades closed from Tomorrow's Trades (Today!), in just the last month, earned nearly 20% each. I don't think a trade that nets 20% in a relatively short period of time is all that amazing. The point I am trying to make is that, in my opinion, holding out for $55 silver is very risky....and why take that much risk when there are other ways less risky to make 20%?
John,
ReplyDeleteyou make some very valid points.When i look at the silver chart for 2006 silver had a very nice run up from over $8 to around $15 , almost double , then it declined to around $10 or so .then it went up again.Isn't that a normal c-wave in which you get a big move up, then a decline ( D-wave ).Don't see how the 2006 silver chart is any different from other years when you had a C-wave .So far this year silver started around $30 is now around 46 , so if you compare it to 2006 silver would have to get to almost $60 before it declined big time ---so it looks like it still has room to go up before a major decline as seen in 2006 .Or is my analysis off some how
Bob - I do understand what you are saying, but I see it differently. Silver took off from right around $18 in late August 2010 when it became apparent that the US Dollar was going to start falling. It then consolidated just below $30, finally breaking above $30 in mid-February. Then consolidated around $35-36 for 3 weeks this past month of March.
ReplyDeleteSilver's string of green weekly candles began from a price of $26, had a mid-point consolidation at $36, and has now completed the T1 pattern with a price of $46.
In the 2006 C-wave, silver went literally parabolic and then got nailed.....only to retrace its correction and put in a slightly higher high as gold topped.
The current C-wave has been advancing towards this conclusion for 2 years now. The 2006 C-wave was 12 months long.
John,
ReplyDeleteIn your "Tomorrow's Trades Today", how do you pick your "sell target"? I see anywhere from 4-19% sell targets.
Thanks
Hi Harry - thanks for your question. Hey, I even had a 30.77% one in there (USSIF) and it worked. Well, it is difficult to explain the answer to your quesition because the answer is so technical, but I use a witch's brew of ingredients and somehow it all comes together rather intuitively.
ReplyDeleteThe ingredients include consideration of moving averages, previous high of both price and the TSI, overhead longer term lines of resistance, how close the TSI is to the ZERO crossover, Bollinger Bands, previous similar setups involving the same stock....and on and on. I guess it's complicated but I am able to make decisions rather quickly as I have a good idea what I am looking for.
I hope these thoughts help answer your excellent question. If not, write a followup comment or send me an email and I can be more specific with the visual example of a chart.
Thank you John. Great post again :o)
ReplyDeleteJohn, its good to see you back in with the blogs.Judging from the comments...many of us
ReplyDeleteread you often.
John, two questions. I see a C wave top in the region of Dec.09, gold hit over 1200 and pulled back nicely. Was the reason for no C wave call there a percentage read? Second, do you think DXY will go 70+-, then correct 50% to 75+-, and then drop to 66 by mid 2012?
ReplyDeleteOK, it was three! Any thoughts on why paper gold and silver are diverging so greatly from the price of the PM's. Example: SLW was at $49 when silver was $38/oz., and now is $41.5 and silver at $48.5/oz. That's a divergence of 40%, silver up 25% and SLW down 15%!
Jim
If you can forgive a REALLY ignorant question, what is a c-wave? Doing a web search revealed hundreds of references to it, but never a definition or graphical representation.
ReplyDeleteJust HOW LOW - do you think the US Dollar can go? Also, just HOW HIGH, do you think the price of say, SILVER can go? A LOT of people are starting to wake up to SILVER, now that it is getting close to breaking through it's Jan. 1980 high of $50.25 - causing many gold-bugs to say that silver has reached it's 'top'... It seems to me, that silver HAS A LOT MORE ROOM TO RISE!!! Especially given the demand in Asia, for silver (much more so, than gold)...
ReplyDeleteAnon 1 - thanks for the encouragement. I enjoy pondering this stuff and writing it down, but I would like to think that someone is reading it!
ReplyDeleteAnon 2 - Jim, that's a good question about the runup in Dec. '09. The thinking is that the top of C waves usually correlate with the bottoming of the US Dollar's 3 year cycle low. As the previous C wave had topped in 2008, it was too soon to expect a C wave conclusion. I should add that each ABCD pattern has gotten progressively more complex. This particular C wave has demonstrated 3 stages. Previous C waves were two or single stage structures.
Your DXY question, I will admit, is over my head. I am short two futures contracts of the DXY from several days ago and hoping to hold to see something in the 71 neighborhood. What happens after that I don't know. Sometimes the dollar has bounced hard from one of these things and sometimes it has gone sideways for months before making a move. I'll just have to follow the TSI and figure it out as I go along, I guess.
Miner vs. bullion divergence? Good question. I have read lots of explanations but not sure what to believe.
Anon 3 - http://thetsitrader.blogspot.com/p/gold-secular-bull-c-wave-data-and.html
Scroll down on this page and you will see some charts I put together last summer to show how golds in a repetitive ABCD wave pattern. (Thanks for a question I could easily answer).
Anon 4 - HOW LOW the US Dollar can go depends on just how stupid the FED Chairman is, in my opinion. If he does QE III, I think the dollar will fall right through $71. HOW HIGH silver can silver go depends on how much of the preceding rally was bullion bank short covering and how much was genuine supply/demand interest. If the former, I think the party is about over at $50. If the latter, well, I have not a clue other than certainly much higher than $50.
Thanks to everyone for their questions and comments!
Hi John,
ReplyDeleteSo today (day 4 into a potential 17 to 28 day waterfall decline), the dollar index actually finished UP by 0.09 basis points.
Does that invalidate or re-set the clock in any way? Or should we expect the occasonal green day for the DXY, while the rest of the 17 to 28 days of the dollar crash are punctuated by pretty significant drops to make up for it? Unfortunately, the charts you provided above aren't detailed enough to see whether there are any green candles during those crashes.
Hi SilverLeaf - your explanation is excellent - occassional green days punctuated by pretty significant drops to make up for it. The panic has not yet set in, btw. When it does, expect a lot of consecutive red candles.
ReplyDeleteDear SilverLeaf, John, the US Dollar Index is measured in points, not $. In fact, it is the exchange rate of the $ to a basket of currencies compared to the exchange rates in March 1973 in % (when it was set to 100.00).
ReplyDeletehttp://en.wikipedia.org/wiki/US_Dollar_Index
So, the USDX measures how currencies experience inflation differently, in %.
In other words, a fall 0.25% per trading day means the $ is losing value faster than the basket at a rate of 0.25% as per 1973.
Nice post btw, I guess that means I'll change some € into $ when the former hits $1.52 or so.
Anon - thank you for your gracious correction. You are right and I was wrong. Points, not dollars. OK!
ReplyDeleteI had bought GPL at 4.40 and saw that on the 24th of March they were selling 5 million shears at 4.20. So not knowing what that really ment, I sold short at 4.10 and bougtht back at 3.69 and at 3.28 and sold at 3.87 yesterday.
ReplyDeleteMilton green
Milton - your story is the best one I have heard in a month! Congratulations. I guess the saying there is more than one way to skin a cat (make a buck) applies. Thank you for writing.
ReplyDeleteHi John, having bought quite a few ounces of silver mostly eagles in stages beginning in late December 2010 my average cost is $40.34 per oz. given your feeling of a correction is holding unreasonable at this stage of the cycle?
ReplyDeleteHi John, thank you for a great blog! I am wondering if you could explain how you identify the different waves in a more detail way. I have not been able to find any explanation that satisfy my Economic/math curiosity. I have found a lot of graphs with information about when a cycle (as the C-wave) starts but not the underlying reason for it.
ReplyDeleteJohan Valton
Hi John, wanted to revisit this post given that sufficient time has passed. How do you think things played out?
ReplyDeleteFrom your April 20th date, it looks like we only got 8 days of waterfall declines. However, if we assume the waterfall started somewhere between March 28th and April 4th, you end up in the 17 to 28 day decline you forecasted. So maybe the error was picking the wrong start date, and your overall thesis held up.
Do you think we ended the C-Wave in gold, and that a significant USD rally has begun? The rally seems to certainly be in place, but gold is still exhibiting decent strength at around $1500. Where do you think we go from here?
Hi SilverLeaf - yeah, I am willing to believe that I used the wrong start date on counting the US Dollar decline.
ReplyDeleteFrom here I am guessing the dollar tops very soon and falls to retest the previous lows...thus giving gold one final opportunity to complete the C Wave with a run to surpass $1600.