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.
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.
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.
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GE Christenson is the owner and writer for the
popular and contrarian investment site Deviant Investor and the author of the book, “Gold
Value and Gold Prices 1971 - 2021.” He is a retired accountant and business
manager with 30 years of experience studying markets, investing, and
trading. He writes about investing, gold, silver, the economy, and central
banking. His articles are published on Deviant Investor as well as other
popular sites.
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The author is not affiliated with, endorsed or sponsored by Sprott Money
Ltd. The views and opinions expressed in this material are those of the
author or guest speaker, are subject to change and may not necessarily
reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the
accuracy, completeness, timeliness and reliability of the information or any
results from its use.
