Wednesday, September 14, 2011

Gold's 1980 Parabola in Greater Detail

On August 28th I posted a chart showing the tendency  gold's parabolic peaks (aka C-wave tops) to coincide with the 3 year cycle low of the US Dollar Index. As you will see from our first chart, the 1980 Gold parabola did not peak anywhere near a 3 year cycle low in the US Dollar Index.

Indeed, the pink rectangle targets the drop in the US Dollar index as the location of the parabolic rise, but looking at the chart from across the room one would not notice anything significant about this little bump in the road.

At present, the US Dollar index has rallied very sharply higher beginning 12 or so days ago. The immediate question is - will it roll over soon and send gold higher?

The second question is - why is gold the same price today as 12 or so days ago?

(The 1980 scenario was identical in that a very sharp rally in the dollar did not seem to faze the price of gold - other than to put it in a temporary sideways consolidation pattern).

So let's have a look at the daily cycles that led up to the conclusion of the 1980 parabola.

I have identified each daily cycle bottom beginning with July 1979, provided a count of the number of days in each cycle and hand drawn the general location of each cycle with an arc shape. The cycle that is identical to the current one we have in now (Sept 2011) is also identified with a rectangular box. You should observe that the period from October to December was a price consolidation of considerable duration and occurred as the US Dollar was sharply rising.

Now we will zero in on that particular daily cycle for a closer look at what was going on.

I find this daily cycle really fascinating. It began on October 8th. Within just two days price raced higher making what some probably thought was a double top. Day 14 came within just $2 of producing a cycle that was left translated and much more serious, a failed daily cycle. At this point I am certain traders were convinced gold was a gonner. The price on our current daily cycle that equates to our current 2011 daily cycle is $1705.40.

But incredibly, gold began to rise. And it continued to rise for 8 days. And on the 8th day it traded just 50 cents higher than Day 2 of the cycle - making what appeared to be an obviously bearish left translated cycle on the verge of failure into an extremely bullish right translated cycle! That was Day 22 of the cycle. The price on our current daily cycle that equates to our current 2011 daily cycle is $1923.70.

Last chart - our current daily chart of gold.

Today is Day 14. The peak of the cycle so far was on Day 7. If price trades below $1705.40 this will amount to a failed left translated daily cycle and be bearish. If price trades above $1923.70 this cycle will be right translated (midpoint day to the right of the center midoint day) and bullish.

I do not have a crystal ball and I do not know how this will turn out.

But some of the clues have me wondering. The gold parabolas of 1980, 1983, 2003, 2006 and 2008 each concluded on the exact same day as their silver counterpart peaked. Will it be different this time?

The powerful rise in the dollar for the past couple weeks has not put a dent on gold. What will happen if the dollar now begins to fall?

Sept 15 additional thoughts:

I have yet to see a single gold parabola that concluded at the beginning of the seasonally favorable period of September. All C-waves have concluded in the December - May time frame.

I have yet to see a single gold parabola that concluded with a consolidation as opposed to a spike. Every previous parabola retested its C-wave 38.2% retracement level within a matter of days. To date, the current gold situation has only barely corrected to the 23.6% ($1705).


  1. Wow man, nice work. I think what we can conclude from this is that cycles analysis during these turbulent periods might provide guidance but not in the normal ways... i.e. if the cycles look analogous to 1980 but are "bearish" then they might actually be "bullish."

    I think the dollar has some life left in it yet. It has formed a nice bull flag and there's still a lot of potential bad news to come out of Europe. I was hoping they would go ahead and kick Greece out so we can get it over with: Let the Euro tank and the dollar skyrocket briefly until people realize getting rid of Greece actually made the Euro stronger. Unfortunately they seem to have chosen the path of most resistance by keeping Greece in. The dollar will probably go a lot higher, but maybe Europe will come to some sort of faux resolution soon that will cause the value to paradoxically skyrocket sending the dollar down.

  2. I was interested to see what events might have correlated with the start of the parabolic move in gold in December and it just so happens to line up nicely with the Soviet invasion of Afghanistan on December 24th. Coincidence?

  3. John,

    Problem is $ fell today and there was no upward movement in gold!

    I too was hoping gold would blast off with $ going down into bull flag but to no avail....

  4. You show your TSI trending negative for the current gold daily cycle, but do not display it for the 1979 data. It would be interesting to see the comparison.

    Thanks for your insight. You are doing original work here.

  5. flaunt - there was all kinds of tensions in the fall of 1979, not the least of which was high inflation primarily caused by a sharp rise in the price of oil.

    But looking for a trigger date one might include the Nov. 4th takeover of the US Embassy in Tehran, Iran with the capture of American hostages and the Nov. 12th decision by President Jimmy Carter to freeze all Iranian assets held in US banks. That day, Nov. 12th, was the top in the US Dollar rally and the beginning of the final leg of the gold parabolic move.

    By December 10th a Gallup Poll showed Jimmy Carter's approval rating at 61% up from 39% the month before - the largest leap in popularity ever recorded - due to the President's response to the crisis with Iran.

  6. Anon #1 - the 5 or so weeks long rally in the US Dollar from Oct 1 - Nov 10, 1979 (the rally that preceded the final leg of the gold parabola) had not one bull flag, but 4. Perhaps I should post that close up look so you can see it. My point is that the current bull flag in the US Dollar is indeed bullish for the dollar and bearish for gold - but it is not fatal by any means.

  7. Anon #2 - sounds like a good idea to post the two time periods with the TSI data for each. I will look into that later today when I have a little time.