By Jim Curry
Last week’s trading saw gold forming its high in Monday’s session, here doing so with the tag of the 1295.20 figure.
From there, weakness was seen into Thursday, with the precious Yellow metal dropping all the way down to a Thursday low of 1273.00 before bouncing slightly to end the week.
With the Easter holiday on us I will cover the major points on what we expect going forward.
Gold Cycle Update
From the comments made in past months, our mid-term outlook has remained unchanged. That is, a peak with the 154-day cycle was favored to play out into late-February of this year, where a decline was expected to take gold back to its 154-day moving average into the April – May timeframe, where the next mid-term trough is due.
With the above said and noted, the action into late last week has now finally met our minimum expectation of a drop back to the 154-day moving average for gold, which we can see on the following chart:
On the chart above, we can see that the tag of the 154-day moving average has now been seen – thus meeting our minimum assumption with the downward phase of this 154-day cycle. Even said, that won’t mean that lower lows can’t continue to materialize – with this wave not really due to trough until mid-to-late May.
Thus, we will continue to view any short-term rallies as counter-trend affairs, at least until a new mid-term buy signal were to occur.
In terms of patterns, the overall view has been that the downward phase of the 154-day cycle would end up as an eventual counter-trend affair Vs the prior 154-day trough of 1186.20, registered back in August of 2018. Support to this correction is at or into the 50-61% retracement zone of 1251-1271, with secondary support around the 78% retracement figure of 1222, should that somehow be attempted.
Stepping back, once the next mid-term trough is in place for gold, we are looking for a sharp rally to play out into the Summer of this year, one that has the potential for a push up to the low-end 1400’s, but only if the metal is able to hold above our Key retracement levels.
From a Summer peak, we are looking for yet another Key low to materialize in the months to follow, before turning higher off the same into late-year.
Gold Timing Index
In terms of technical action, our best indicator for mid-term trend direction of the gold market is the Gold Timing Index, which is shown and updated again on the chart below:
With the above said and noted, buy signals in our Gold Timing Index have been followed by mid-term rallies, while sell signals with the same have normally been followed by sharp decline phases.
With that, our Gold Timing Index is currently on a mid-term sell signal from back in early-March, a signal which remains intact as the present time.
A net positive with the above is that our Gold Timing Index is seeing a divergence from the recent new price low, which – as mentioned last weekend – is our initial setup for a mid-term buy signal.
Having said that, it would take a daily close back above the upper standard-deviation band to actually trigger this buy signal. With that, this may or may not materialize going forward, and it is just-as-possible that this divergence will end up being wiped out.
For now, all that we know is that a mid-term sell signal is still in effect, until otherwise reversed.
Gold Commercial Hedgers
In looking at the CFTC data from last week, the commercial hedgers have covered a huge chunk of their recent short positions.
Take a look again at the chart below:
As noted in past months, the net short position from the hedgers was seen as a bearish indication for gold particularly with the configuration of the 154-day cycle.
With the action seen last week, the commercials have now covered 54,000 of their bearish bets, which is starting to be seen as a net positive going forward.
Should this pattern continue in the coming weeks, it should support the idea of a sharp rally phase playing out into the Summer months, once again with that rally coming as a courtesy of our 154-day time cycle.
Stay tuned, for more as the action in gold moves forward.
Paul Ebeling, Editor