Is Gold Capitulation Coming? [SPDR Gold Trust (ETF), iShares Gold Trust(ETF), ETFS Gold Trust]

On Friday oil broke below its major intermediate uptrend line from the January bottom. This trend line break should signal that oil has begun moving down into its yearly cycle low. The CRB should soon follow oil lower, and I doubt that it will move above that 2012 high before rolling over into that intermediate degree midyear correction.

How does this pertain to gold? To begin with I think the capitulation phase that I theorized in my previous report is probably now off of the table. For that scenario to come to fruition, the previous daily cycle needed to drop to the sub $1200 level before bottoming. It looks like gold probably put in that daily cycle low on Thursday at $1268. So does this mean that gold has bottomed and the next bull leg is ready to begin?

While it’s possible, I tend to think gold probably still has one more mild leg down before the larger intermediate cycle forms a more lasting bottom. Generally speaking the intermediate cycle in gold usually runs between 20 and 25 weeks. A bottom on Thursday would only be week 16. Also most intermediate cycles have at least four, and sometimes five daily cycles nested within them. As you can see in the chart below the current intermediate cycle only has three daily cycles so far. Unless gold can do something to confirm a short intermediate cycle I think we have to assume gold still has one more daily cycle down before this intermediate decline is complete.

Now that the capitulation phase is probably off the table I think the most likely target for a final intermediate bottom would be in the $1260-$1240 range somewhere around the end of May or beginning of June.

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