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September 23, 2014

My Gold Trade

Back in July, when many gold bugs were still declaring the return of gold's bull market, the yellow metal delivered a rather clear signal that more downside would arrive. A key indicator used by those of us who trade cycles is the failed daily cycle. A failed daily cycle indicates a weekly cycle in decline, and so a trader can then anticipate price trending lower at least until the weekly cycle timing band arrives.

Unfortunately for us cycle traders, the arrival of a failed cycle was not so clear in July. I had speculated in the letter that July 3 may represent a daily cycle low, but due to the shallow nature of the dip, I wanted further confirmation. That confirmation arrived when gold closed below its lower TrendBand.

A close below the LowerBand is generally an indication of a weekly cycle in decline. At that point, I knew gold was in trouble because the weekly cycle was only seven weeks old, meaning gold faced up to three months of decline into its next major low. As noted, in Time to Short Gold, I executed on that signal.

Fast forward two months and gold is about $70 cheaper and about $120 off its weekly cycle peak. Thus far, the decline has been rather mild for an intermediate-degree decline. However, gold has yet to encroach its weekly cycle timing band. Therefore, we should see price form one more failed daily cycle before printing the next, important low.

Assuming today's pop is commencing that now-overdue daily cycle, we should see gold work higher for a few days to get above the LowerBand. Price must then unfold the final leg down into a weekly cycle low. Given the importance of the dual 2013 lows around $1180, I believe we may see panic ensue as that level is violated.

Furthermore, I have noted in the Member letter how gold is conveying that early crash feeling we saw in the spring of 2013... a day-by-day leak lower with several false reversals. Once the current bounce fails, I believe we may see Gold Crash 2.0 release its fury. A major pivot sits down around the $1000 mark. I will not predict that result, but I do believe such a drop is within the realm of possibility.

 

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