Cycles & Terminology
I remember when I first discovered cycles – it was like a lightbulb went off, and everything started to make sense. I learned that if you can find the natural rhythm of a financial asset, then timing that market gets a lot easier. For example, if a stock or commodity is forming cyclical lows every 12 – 14 weeks, you probably don’t want to buy on week 8 – you’d wait a few more weeks and buy as the cycle bottoms naturally.
With gold, I found the following to be true:
- Three primary cycles form the underlying trend.
- Each lesser degree cycle creates the next higher timeframe.
- Major bottoms tend to correlate with US Presidential elections.
The 8-Year Cycle
In 2015 I did an in-depth study of the long-term cycle in gold and determined that it averages about 8-years between bottoms. Diving deeper, I discovered that each low corresponds with the US Presidential elections (+/- 4-Months). And lastly, there may be some predictive value as the sequence supported a Republican (Trump) victory in 2016.
The 8-year Cycle: Gold tends to form major lows about every 8-years. These lows arrive around the time (+/- 4-months) of a US presidential election. The arrows in the quarterly chart below depict each 8-year cycle low since 1976.
Note, the most recent 8-year cycle low (December 2016) failed to exceed the 2015 low – likely a result of interest rate intervention during the preceding cycle. A similar pattern unfolded in 2001 when prices failed to make a lower low and created a double bottom.
***The next major 8-year cycle low is due between July 2024 & March 2025 and recommends a Democratic victory (incumbent or otherwise).
The 6-Month Cycle
Here’s an example of several 6-month lows and one 8-year low. The 6-month cycle can be more volatile and less predictable than the 8-year series. On occasion, a 6-month period will stretch out to 8 or 9-months. When that happens, the next cycle is usually shortened, lasting just 3 or 4-months.
The 2008 8-year Cycle Low: President Obama was reelected over Senator McCain on November 4, 2008, winning 365 electoral votes versus McCains 173. The 8-year cycle bottomed 2-weeks before the actual election because Obama was heavily favored to win.
The Lesser Cycle
Each 6-month cycle is usually comprised of two or three lesser degree cycles (green arrows) lasting, on average, about 55-trading days. The decline into a 6-month cycle low should break at least one of these lesser cycles lows producing a failed cycle.
***I designed the Gold Cycle Indicator (GCI) around the 6-month cycle. Because some cycles run long and others short, it was not feasible to catch every turn – those events are considered outliers. With this in mind, the GCI was created to detect the majority of cyclical turning points.