Overall, metals and miners are progressing as expected into their 6-month lows. I expect a bottom in the first two weeks of December.
One point of contention is the current COT status. I was hoping commercial shorts would be closer to 200k by now. Instead, they added 17,627 contracts last week for a new net-short position of -319,095. I’m not sure what it means just yet – I’ll continue to monitor.
CURRENT GOLD CYCLE INDICATOR 103:
As the next 6-month low approaches, I wanted to do a quick recap of the bigger picture to put things in perspective. If my analysis is correct, this could be one of the last great buying opportunities.
Also, I’ve been working on a Cycles & Terminology page so members can access and study the various gold cycles. It should be ready within the next week or two. Below is the work I’ve completed so far.
Cycles & Terminology
I remember when I first discovered cycles – it was like a lightbulb went off, 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 to buy as the cycle bottoms.
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.
Gold’s Current Setup
-GOLD MONTHLY CHART- By my estimation, the current pullback is comparable to the post-breakout correction in early 2003 (pink arrows). If my analysis is correct, then this could be one of the last great buying opportunities.
Of course, it’s impossible to predict every swing or where prices will be 5-years from now. But the 2019 breakout above $1400 supports a new bull market, and prices should work their way higher, eventually breaking out above $2000 by 2021 or 2022. After that, it’s hard to say how high or quickly prices will rise. Whatever the case, I think the primary trend stays upward into 2023 or early 2024 before gold drops into the next major 8-year low (late 2024 to early 2025).
-GOLD DAILY- Gold is set up for the final decline into a 6-month low. Prices could break lower next week. The 200-day MA is the ideal target as it crosses $1400. As I said earlier, I’m not entirely comfortable with the current COT situation. I’d like to see commercial shorts a lot lower. It may be nothing, but it could suggest gold may have to drop further than I’m currently expecting. I’ll monitor and update as matters progress.
-SILVER- Silver is set up perfectly for a final decline into early December. The ABC measured target supports a drop to the target box and corresponding trend channel around $15.60. However, prices could find support at the 200-day MA that is approaching $16.20.
-GDX- If gold and silver decline as expected, then we should see one more sharp selloff in miners to uproot the bulls. I’m still looking for a gap fill near the $24.00 level.
-GDXJ- Breaking below $35.50 should trigger a final selling event towards $32.50.
-GBTC- The Bitcoin trust GBTC dropped sharply on Friday but recovered intraday. As I said in the Thursday report, December seems to be a key month for Bitcoin – prices tend to form majors tops/bottoms. If prices break sharply below the October low, then we could see a continued selloff into mid-December. In Bitcoin, breaking below $6500 would imply a drop to around $4000.
Next week is Thanksgiving here in the US. There will be no Thursday report. On Friday, November 29th, markets close at 1:00 PM.
Have a safe and pleasant weekend.