I’d like to take a moment to explain the bearish possibility I laid out in the November update. A few members were surprised, feeling that I had somehow grown pessimistic. I assure you that is not the case.
Pessimism implies a personal bias based on individual emotions. I learned a long time ago that emotional investing doesn’t pay. Successful traders must approach the markets without bias or predetermined conclusions. Mark Twain said it best, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
THE 8-YEAR CYCLE IN PRECIOUS METALS
The 8-year cycle is the foundation of our cycle work. Gold prices form a major low approximately every 8-years. Further study reveals this cycle centers around a US Presidential election, either arriving slightly before or just after the November election. The earliest cycle we found bottomed August 25th, 1976, 70-days before the election. Though, the majority of these cycles typically bottomed in the 1st quarter of the following year. Historical measures suggested a bottoming period between August 2016 through March of 2017 for this 8-year cycle.
Gold prices made a low at $1,045.40 December 3rd, 2015. A full 11-months before the November 8th presidential election. Needless to say, we were not expecting it to arrive that early. It broke the cycle timing trend, and I reasoned that negative interest rates forced the cycle to bottom prematurely.
Technically speaking we are still within the timing window for an 8-year cycle low until April 1st, 2017. IF (big IF) the 8-year cycle forces are going to drag gold prices below $1,200 and into the fist quarter of next year they will do it here.
-QUARTERLY GOLD CHART- Each 8-year cycle breaks the cycle trendline to confirm the low. Prices rallied from the 2015 bottom to touch the trendline but are yet to decisively break it.
What we are watching: If gold tests $1,300-$1,315, corrects, and then sustains a breakout above $1,315, I can safely say we are in the clear. However, if gold prices can’t maintain a breakout above $1,315, then a move below $1,200 lasting into February/March 2017 becomes very real. That would subsequently become the 8-year cycle low or a secondary low depending on where it bottoms.
-GOLD DAILY CHART- Gold must sustain a breakout above the resistance zone to eliminate the potential for a secondary drop into the first quarter of 2017. I will buy the first common cycle low “1” anticipating a breakout above the resistance zone. I will sell my position if gold is unable to maintain its price momentum above $1,315.
Again, I’m not trying to frighten anyone. It’s merely a possibility that I will be monitoring during the month of November. I plan to take partial positions during the next pullback in gold.