Since 1980 gold has seen a pattern of important lows every 3-5 years. Typically, a long 5-year span between lows is shortened during the following cycle and a short 3-year span reverts back to a four or five year cycle. While the lows of last summer would have made for a nice 4-year, trough-to-trough cycle, the fact that the previous cycle between 2005 and 2008 was only three years implied that the current cycle could expand to something closer to five years. A 5-year cycle would tend to exert downward pressure on gold until as late as this autumn. This gives us a targeted low between now and October.
On a shorter time-frame, gold exhibits a 48-week cycle. Since the low in 2001 it has varied between 47 and 50 weeks with one 61-week period in 2007. The next expected trough from a 49-week cycle can be expected in, or near, the week of May 13, 2013.
Gold came close to my initial target of 1,595 at last Friday’s intra-day low of 1,599.50. This target was based on a triangle which formed inside the trend channel which gold has been trading within since last October. But with Friday’s break of the 61.8% retracement level of the May advance, combined with a confirming ADX indicator and 3 months before the expected turn explained above, I suspect far greater losses are in store for gold before a bottom is seen.
Ed Carlson, author of George Lindsay and the Art of Technical Analysis, and his new book, George Lindsay’s An Aid to Timing is an independent trader, consultant, and Chartered Market Technician (CMT) based in Seattle. Carlson manages the website Seattle Technical Advisors.com, where he publishes daily and weekly commentary. He spent twenty years as a stockbroker and holds an M.B.A. from Wichita State University.
For a free copy of the February Lindsay report, send your request through the SeattleTA website at http://www.seattletechnicaladvisors.com/contactus.html
Related: iShares Gold Trust (NYSEARCA:IAU), SPDR Gold Trust (NYSEARCA:GLD), ProShares Ultra Gold (NYSEARCA:UGL), ETFS Gold Trust (NYSEARCA:SGOL).