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Gold At A Major Crossroads

Saturday, October 8, 2011 19:01

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I think next week will mark a major turning point in the gold market. Depending on whether the dollar continues higher or turns back down we will either see a resumption of the D-Wave decline or this will just turn into a normal run-of-the-mill intermediate degree correction followed by another leg up in this 2 1/2 year C-wave advance.

First the pros:
The COT report has now reached a maximum bullish level on the commercial contracts. In the past this has always marked major bottom turning points.

Sentiment & breadth have reached extreme bearish levels (contrary indicator).

Chart courtesy of sentimentrader.com

It’s possible that gold has formed a small T-1 continuation pattern (A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected.)

There is a small problem with this interpretation as the second leg of a T-1 pattern is generally slightly smaller than the first leg.

The cons:

The current intermediate cycle is too short. Barring a shortened cycle, which does occur rarely, there should be one more leg down into the normal timing band for an intermediate degree cycle bottom (20-25 weeks).

Also the HUI mining index is potentially forming a megaphone topping pattern. If gold does have one more move down into a true D-Wave bottom then the bounce off the lower trend line should fail followed by one more aggressive move lower.

Also there is a much larger T-1 pattern in play that fits the normal parameters much better than the smaller version.

You can see from the chart above that unlike the smaller T-1 the larger version does feature a second leg slightly smaller than the first, and if this pattern is playing out then we need one more move lower to test the midpoint consolidation zone.

Right now the battle is being fought at the $1600 level. So far every time gold reaches that level buyers step in.

If however gold closes below $1600 that would be a serious warning sign that the current daily cycle will be left translated and that gold is indeed caught in a true D-Wave decline. If that’s the case it still needs to test the consolidation zone of the large T-1 pattern and the intermediate degree cycle will bottom in the normal timing band (November). If this scenario unfolds then we can look for an A-wave advance to begin once that final D-Wave bottom is in place.

As I have noted before A-waves usually test but fail to exceed the prior C wave top. They are almost always followed by a lengthy 1-1 1/2 year consolidation before the next leg up can begin.

In my opinion next week is going to be critical. Either the current daily cycle is going to break down below $1600 in a left translated manner, in which case we will probably see gold continue sharply lower to test the 75 week moving average and the consolidation zone of the large T-1 pattern. Or if gold can gain some traction and breakout of the recent trading range to the upside then the smaller T-1 pattern comes in to play and we should see gold make another run at $2000.

I’ve had quite a few requests for a trial subscription link, so I’m going to add a permanent trial subscription offer. $10 for 1 week of full access to the premium SMT report. If you decide you like the premium newsletter your subscription will automatically convert to the yearly rate after seven days. If not, just cancel your subscription prior to your week expiring by following the directions on the premium website homepage.

To access the trial subscription click here and then click on the subscribe link on the right-hand side of the homepage.

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Comments

Total 3 comments

Anonymous

Gold and other commodities have become cheaper as the dollar has gotten stronger against other currencies. Even commodities like corn have gotten cheaper. That will continue for awhile yet as the problems in Europe continue. That doesn’t change the fact that the Fed has been printing trillions of bogus dollars and eventually we’ll have hyperinflation like Germany had in the 1920s. When the dollar loses value gold will go up again.

Oct 8, 2011, 2:25 pm 0 Reply
HfjNUlYZ

I really can not see how the author can use charts when the world economy is on the verge of collapse. The normal rules just don’t apply.

Gold and Silver are real money, the recent falls in the prices of PM’s have been down to manipulation, not free market forces.

Wait until helicopter Ben announces QE3, all your pseudo graphs will be blown out of the water.

Oct 9, 2011, 5:16 am 0 Reply
Anonymous

Chinese gold analysts say gold could rise to $2,000/oz in Q4 Silver prices expected to reach $100 in 2012 Gold may climb 21 percent to a record $2,200 an ounce by the end of 2011, platinum may gain 10 percent said the London- based chief investment officer of Duet Commodities Fund Ltd…
the gold price could go(higher) to a number that we simply cannot, at this moment, evenimagine.”

New Delhi, Aug 19: India is likely to set a target of 9 percent economic growth during the 12th Five Year Plan, that runs from 2012-13 to 2116-17, when Prime Minister Manmohan Singh chairs a meeting of the full Planning Commission here on Saturday.Prime Minister Manmohan Singh today set a targfpet of 9-9.5
percent growth for the next Five Year Plan that starts on April 2012, The target of $500 billion investment on infrastructure … India India Sets Ambitious 10% Annual Growth Rate For 2012 -2017 With $1 Trillion for Infrastructure ! NEW DELHI – If this year’s preparations on India’s next Five-Year Plan (2012-17) provide any indication, the Planning Commission is likely to set ambitious targets for economic growth, kicking it up to an annual rate of 10 percent, highlighted by a $1 trillion investment for infrastructure development
to invest $1 trillion in infrastructure over five years: PM … to achieving nine
percent growth, targeted for the next Five Year Plan2012-13 to 2016-17),There will be violent volatile moves going forward in prices. But gold should hit US$3,500/oz and silver US$150/oz within a year!

Oct 9, 2011, 6:03 am 0 Reply

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