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You may be, in fact probably are, a gold bug if you are reading this.
Well, I am not a gold bug, but I have followed gold closely from a technical trading perspective for many years. I respect your faith in it. I would never short it, nor would I short mining stocks, even though the charts may look like good shorts from time to time.
I'd rather play the metal and the miners strictly from the long side, looking for the best times to enter and, sometimes, to take profits. It's not always easy. Gold's trends are sometimes inscrutable. Those who manipulate the price of the metal do not have market-based motivation for doing so. It's always tricky.
That said, I'm here to give you an unbiased technical perspective on where the metal may be headed both over the intermediate term and longer term. This perspective is based on my 47 years of studying cyclical analysis.
And, if I'm not mistaken, there could be a gold upturn in the near future…
Over my years of study, I have developed a number of timing indicators based on the cycle theory of JM Hurst that can help us in our quest to figure out when to buy gold, when to sell it and, at times, when to convert it to cash. Because sometimes, cash really is king.
Is this one of those times? Gold performed terribly from 2011 to 2015. That was a true cyclical bear market. Over the past two years, its performance has been lackluster. It has lagged the gains in stocks by a margin that must be considered a kind of cosmic joke.
Since the gold bear market low at the end of 2015, gold has risen 20%.
Stocks have risen 44% over the same period – 44%! That's more than twice the increase in the S&P 500 earnings per share. The world's central banks sure have done their jobs.
Nevertheless, that 20% gain in the price of gold meets the CNBC/Wall Street Journal bogus standard for an "official" bull market. Never mind that there's no "official" body that determines bull and bear markets. They said it, therefore it must be so, Virginia. Normally when a market moves up, the gaggle of media hacks shouts it from the mountaintops.
But when it comes to gold?
Admittedly, I haven't watched CNBC in 14 years, and I'll read something in the WSJ only when the boss tells me to, so maybe I missed something. I read the data, not misinformation about that data. However, I do monitor a twitter feed full of financial news sources, and I have seen nary a whisper of a gold bull market.
It's all semantics anyway. Who cares what you call it? Is the price rising or not? The answer, for gold, is "yes and no."
Long-Term Charts Show Me a Strong Base for a Potential Breakout in Gold
Let's look at a long-term chart from the secular trend low in 2001. Gold was apparently in a secular trend bull market from then until 2013.
Then in 2014, the price broke a trend line extending from a low late in 2001 and a low in 2005. Was that the end of the secular gold bull?
Perhaps not. A second trend line projected from two lows in 2001 was touched at the 2015 cyclical bear market bottom. The decline stopped right there at that trend line! Gold then rallied to a new intermediate high in mid-2016. Then it pulled back and again stopped almost exactly on that trend line at the end of 2016.
This secular trendline still hasn't been broken as of mid-November.
Here's where it gets ambiguous. In 2016, gold rallied to a new intermediate high above the late 2014 high. A higher high is step one in indicating a new bull market. A higher low and then another higher high needs to follow that to form a bull market pattern.
We got the higher low in July. Both the late 2016 low and the July 2017 low stopped right at that long-term trend line where the cyclical bear market bottomed in 2015. But so far, there has been no higher high to confirm that the major trend is up. So we can't be sure that this is really a cyclical bull market. Gold needs to clear the mid-2016 high of $1,375 to confirm that this is a cyclical bull market. The most we can say at this point is that it is at least flat.
The trend line connecting the late 2001 and 2015 lows is the clear line of demarcation between the continuation of a secular bull market or a sign that it has ended. That line is in the $,125 to $1,260 area this month. A monthly close below that would confirm that the secular bull market ended at the 2011 high.
On the other hand, a strong rally from around this level that closes above $1,375 at the end of any month would be a clear sign that the secular uptrend remains in force, joined by a cyclical bull market. Such a synchronized pattern would be powerfully bullish.
A breakout through $1,375 would suggest that a new four-year cycle upleg was under way. The momentum indicator at the bottom of the chart clearly shows four-year cycle lows in 2001, 2005, 2009, and 2013. Can you guess when the next momentum low was due? That's right! This year.
It's very interesting that momentum has never turned down since that 2013 low. This could be a tell. A pop in this indicator would be coming from three years of rising momentum. That would be a very strong base for a real breakout in gold. If it coincided with a price breakout above $1,375, I would dig in for a ride much higher. Once through $1,400, gold should face little resistance below $1,750.
But beware, if the price of gold breaks that long term trend line from 2001, and momentum also turns down, we would probably be in for a very rough ride in the short run. The target could be the 2015 low around $1,050 or worse. Such a washout could set up a good bottom, but let's not cross that bridge unless and until we come to it. It would be precluded by an upturn from here.
To fine tune timing, I turn to proprietary weekly and daily basis cycle charts that I developed for my weekly gold and precious metals mining stocks update in the Wall Street Examiner Pro Trader.
My Short-Term Charts Zero In on the Exact Timing for the Uptrend
About the Author
Financial Analyst, 50-year charting expert, finance + real estate pro, and market analyst; published and edited the Wall Street Examiner since 2000.