Gold – Major Cycle Lows

Gold bottomed in December 2015 at a major cycle low.

Or did it?

Financial Sense published in May an article by Tom McClellan, an excellent analyst:  “Major Cycle Low Upcoming in Gold.”  The low may be coming as this article suggests, or perhaps it has already occurred.

Cycle analysis can be useful but, as in chaos theory, a small change in initial conditions can create a substantially different outcome.

Example:  In the above article Tom McClellan uses an 8 year cycle and a 13.5 month cycle to conclude that “There is a major cycle low looming for gold prices.  Ideally, it should arrive as a price low in late 2016.”

ALTERNATE ANALYSIS:  His proposed 8 year cycle could instead be a cycle of 94 months, or 7.83 years, and the 13.5 month cycle could be 63 weeks, or 14.5 months.  These tiny changes indicate the significant cycle low probably occurred last December.  Examine the following log scale chart of MONTHLY gold prices back to the 1976 low.
O-Gold-Monthly

Note that a 94 month cycle (7.83 years) points to all six major lows since late 1977 – see the green ovals.  The cycle lows do not precisely match price lows, of course, but in 5 of the 6 cases they are close, and the sixth case is split between price lows in 1999 and 2001.  The monthly RSI at the bottom also indicates all significant lows.

Examine the following log scale chart of WEEKLY gold prices back to the 2007 low.

O-Gold-Weekly-3

Note that a 63 week (14.5 months) cycle points to all eight major lows since 2007 – see the green ovals.  The cycle lows do not precisely match price lows but in all cases they are close.  The weekly RSI at the bottom also shows the significant lows.

WHAT DOES THIS PROVE?

Probably nothing, but it clearly indicates the following:

  • An 8 year and 13.5 month cycle analysis are only two of several cyclic interpretations.
  • At least equally valid are 7.83 year cycles and 14.5 month cycles.
  • Cycle analysis should be used carefully and validated with other fundamental and technical data.
  • The RSI (relative strength index) as shown on both charts further validates the 7.83 and 14.5 month cycle interpretations.
  • The important gold cycle low has, in my opinion, already occurred, and waiting for it to occur later this year may be detrimental to your ability to add to your gold and silver stacks.

Cycle analysis is a long way from absolutely reliable.  Do your own analysis and research, but do not automatically assume that gold prices will fall into late 2016 based on the linked article.  I believe the charts shown above are valid and realistic in their assessment that the seven to eight year gold cycle low has already occurred in December 2015.

If the gold cycle low has occurred and the gold bull market has restarted, as many believe, the next cycle low is not due until approximately 2023, which means there is ample time for gold to rally to new highs FAR above $1923.

 

Gary Christenson

The Deviant Investor

 

 

 

 

6 thoughts on “Gold – Major Cycle Lows

  1. Gary, thanks for the insights on cycles. I had found McClellan’s commentary quite disconcerting. Thanks for the balance. But I wanted to comment on your weekly chart. The RSI median line at 50.22 seems to provide serious support to the Gold price when gold is in a bull trend. Between 2009 – 11 nothing got thru there and each time gold tested that line it ended up rising 100 to 300 points. The current situation over on the right of the chart looks like a launch pad with 1450 a likely target despite all the jabber about how bad this pullback is going to be and how we should wait for better prices to buy. Do you think that is a valid assessment on my part?


    • I think your assessment is correct. In a bull market (2009-2011) the 50 line for the weekly RSI provided good support. I think we are now in an extended bull market for gold and the 50 line will be good support again. Friday’s move certainly helped with this analysis.
      The Deviant Investor



  2. The price of gold was always determined by central banks, at least since 1913, the year when the Fed was created. Originally kept at roughly $20, later in 1933 adjusted to $35 by Roosevelt. In the early 1980’s, under chairman Volcker, the price of gold was adjusted to roughly $400 where it stayed for 20 years before the present episode of gold price volatility started. Beginning in 2001, the gold price moved up and when it reached $1900, the authorities decided that is enough and pushed the price back down to roughly $1200 where it is resting now. Nobody can predict the future with certainty and so it is impossible to know for how long the price will fluctuate around $1200. This is ultimately politics. In the worst case scenario, the price of gold could stay in that range for another 20 years before it moves up again. Moving up it will one day, but we can not say when. The good news is that gold is still relatively cheap when measured by the ratio pice of gold divided by the average salary. 100 years ago, the average worker earned $200 to $400 per year, that is 10 to 20 ounces of gold per year. Last year, the average American made $45 thousand, that is close to 40 ounces of gold. So from a historical point of view, gold is very cheap today.

    Gary, can you post a graph displaying the ratio of average salary divided by the price of gold over a long period of time ?


    • I will post a graph as you suggested – will take a few days.

      My opinion: Gold will not fluctuate long around $1200. Look for much higher prices later in 2016 and especially in 2017.
      The Deviant Investor


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