It’s very late in gold’s intermediate cycle (18 weeks) and it’s now due for an intermediate degree correction. As most know, I think gold is probably stuck in a difficult basing pattern this year. The big reversal on election night drove gold sharply back below the 200 DMA and that took the fire out of the metals sector. So instead of a continuation of the baby bull we are now left with a difficult basing pattern that could take the better part of the year to play out. It’s just going to take some time to turn that downward sloping 200 week moving average back up.
Some patience is called for right now. Gold is very deep into its smaller daily cycle (27 days). It needs to complete a short term correction. That means it needs to drop far enough to break the cycle uptrend line, drop below the 10 day moving average, and it should spend enough time below the 10 to turn it down. So there’s no hurry to buy the dip right now. As of Friday short term sentiment was at 83% bulls in GLD. That’s just way too bullish. We should see sentiment drop back below 15% bulls before the daily cycle low is complete.
The bounce out of the next daily cycle low is the dangerous one as that is the cycle that should be left translated and complete the move down into a final intermediate degree bottom. Many traders fall victim to the final daily cycle, and buy too soon, only to get caught when the cycle left translates and moves down into its final ICL.
Gold will need to break its larger intermediate trend line before we start looking for a more lasting bottom. As you can see in the next chart the junior miners have already broken that trend line suggesting they are leading the metals down into the ICL.
You will know when it’s time to buy. I will be the only one looking for a turn higher, everyone will be bearish, the technical traders will be calling for lower prices, and everyone will think I’m crazy for wanting to buy metals and miners. (The same thing that happened at the December low).
I think the real opportunity will be in the mining stocks as I think the banks are setting the miners up to run the December lows, and trigger everyone’s stops. This same thing happened at the bear market bottom. Everyone was looking for another leg down. I was one of the few who saw the breakdown for what it was, a strategy to allow the banks to accumulate large positions ahead of the baby bull rally. I think we’re likely to see something similar this summer.
So be patient for the next month or two. Wait for that failed daily cycle to run its course, and watch for the banks to manufacture a stop run before you pull the trigger on the metals again. You will know it’s time to buy as I will be the only one bullish. When I’m bullish and everyone else is bearish, that almost always means gold is at, or very close to a major bottom.
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