Wednesday, July 31, 2013

Gold: A Good Time for Bears to Back Off

I have studied gold's bull market in detail.....for more hours than I hope most good folks have time to spare. The daily and weekly cycles I tediously documented with the assistance of my ability to write ThinkScript code using the Think or Swim platform. If you are interested is seeing the details, here is a post that will show you the details.

Something went awry in December of 2012. The daily and intermediate cycles that worked like clockwork from 2001 suddenly were screwed up. Who gets the credit for this I can only speculate. It doesn't matter though - knowing who and why will not change the past.

But there is one thing about gold's daily cycles that has NOT changed, even once. And that is the fact that each and every gold daily cycle breaks its price trend line before beginning a new daily cycle.

We have not yet broken the current intermediate cycle trend line - but for now anyway, that consistent truth remains in tact, as well.

The point of this post is to alert those interested in gold's price behavior to the fact that the trend line of the current daily cycle begun on June 28 has been broken. If gold's low of earlier this morning turns out to be the end of the daily cycle (Day 23 - which is entirely average for gold's daily cycles) then I think all bears should be warned to get out of our way - because the bull is coming.

The thing I did not draw on this chart is the pennant pattern that gold has formed. Usually, the pennant pattern is a continuation pattern that marks the half way point of an extended rally. If that develops this time (as I strongly suspect will be the case), the move up from $1180 to the center of the pennant at $1325 is $145. This projects price up to at least ($1325 + $145) $1470 and odds are good it will occur in the time frame of just 4 weeks (or slightly less).

If I were a gold bear, I'd really have to think long and hard about doing anything at this point except running.


  1. what do you think, one more shot at a new low tomorrow? Up from here?

  2. Hi John, I am not really following your chart. It seems that every uptrend line that you have drawn shows it broken and gold making lows, but you are saying now that because that there was a bounce off of the current uptrend line that it means we'll head to the $1400 (potentially)?

    1. Senior Trader - thanks for your question as it clarifies for me some information I did not include in the article and probably should have.

      That information is this: gold's daily cycles average 24 days. It is extremely rare that one is only, say 14 days or 35 days. Those extreme daily cycle findings occur but they are standard deviation 12 off the norm. Rare.

      But no matter the length, no matter if in a huge up trend or a huge down trend, each and every daily cycle breaks its price trend line before it begins a new daily cycle.

      Yes, what you see on my chart here are trend lines broken one after the other and price just kept going lower. What you did not see (my fault) is the trend line breaks one after the other while gold is screaming higher for months on end.

      The reasons I believe gold is going well beyond $1400 in the next weeks is nothing to do with these trend lines. However, it does have everything to do with the pennant pattern that marks the midpoint of a strong rally....and the fact that we are in a secular bull market that has been temporarily thrown off track by forces who have not allowed the free market to operate normally.

      These forces, whoever they are, seem to be losing their grip. Oil is breaking higher, the US Dollar is in the process of coming unglued, the incredible profits housed within the recent insane stock market advance will be looking for reinvestment elsewhere when somebody yells fire on 'The Floor'. There are behind the scenes things going on with the transfer of gold bullion from one power to another. The bond market peaked months and months ago - after rising for 30 years. For all the FED prints, no one trading bonds listens anymore....interest rates rising. Sorry, I could go on and on.....

  3. Hey John, nice charts and analysis. Gold getting hammered tonight, currently down over $20 into the 1280's. How will this affect your theory? thanks.

  4. Anon - I think price has now moved below the lower boundary of a pennant, so that theory is off the table. One could view this as a coil pattern that has finally made its move - in which case the odds favor a reversal of this temporary downward direction.

    What I feel strongest about are a couple of new facts for gold. First, this is the first time it has been able to make a right translated daily cycle that did not top until day 18. This observation has not been seen for about a year. And second, on the weekly chart the TSI finally made a trend line break above that multi month succession of TSI lower highs and lower lows. That happened about 3 weeks ago.

    The angle of price weekly off the 2008 bottom was 36 degrees. At present the angle off our 2013 bottom is quite a bit steeper and would need to tag $1250 just to get down to the same trajectory. So, I guess if it's not one thing, it's another. The most important thing is to keep focused on the bigger picture, at least in my mind.

  5. I think there are a number of hard core bears who will not think of running until gold hits 1000 or even 850. I also think that cycles tend to work best when a market is trending higher, but don't tend to work well when a market is trending lower.

    Right now the gold market is at a possible turning point, but IMO gold needs to trade above 1400 to confirm that it's made a significant low here. 1450 would be better. Trying to catch the bottom has been disastrous since this last decline began last October.

    Good luck and good weekend to you and your readers!

  6. John, we are getting beat up once again. You still thinking up or do we wait some more? Thanks.

  7. John, how high do you have us going in the near term? I have us topping out at 1450-1500 around mid September, then a nice decline and higher low set in early October (1300), then a much larger rally from 1300 to 1650 (Oct 13 to Jan 2014)
    Im currently Long Gold and Silver options for Sept Q3.