Gold uptrend still intact but short term cycles need to be watched by Bill Downey

July 11 2014

Initial Resistance 1342-1347 2nd tier 1355-1359
Initial Support 1331-1335 2nd tier 1318-1322

The rally in gold started yesterday after the Federal Reserve minutes were released and got another bump up, as investors reacted towards the European news. This is a small move towards safety, but if other banks in Europe are affected, we could see a much larger migration towards safety.

With financial fears being rekindled in Europe as problems in the debt market surface, specifically with Portugal's largest publicly traded bank, investors are seeking safety. The SPDR Gold Shares (GLD) and iShares Silver Trust (SLV) are both rising, as investors bid up both gold and silver on the back of the missed interest payment. With events unfolding in the Middle East pointing to Israel potentially using ground troops, this might be a trade with further room to run.

Gold Hourly Chart

Gold continues bullish as we enter Friday. Resistance is the 1342-1347 area on the chart and 1359-1372. Support is the 1325-1335 area for Friday. The bulls still have the advantage but we do have some concern over the cycles and whether they are inverting or not.

CYCLES
With the short term trend ideal turn date - July 12th being a Saturday, it’s possible we bottomed early last Monday as the window for a turn opened on Tuesday. That would mean gold still has two weeks to run. But the alternate pattern below on the chart does worry me that Gold might be doing what it did in March when it peaked on a cycle inversion as war tensions in Ukraine faded out. The one thing that is different this time is that silver has followed through on the upside where as it did not do so in March. Nevertheless, the potential for gold to continue higher cannot be ruled out. It’s a tough call here but if this alternate rotation is not correct, then gold has the potential to rally towards 1360-1372. For the moment, the trend is still up. Let’s just keep this rotation as a possibility that would suggest that gold would peak by Tuesday of next week at the latest.

Is the long term low in place for gold ?

If the best wave count from the Elliot wavers is correct the answer is no. Their best label at the moment shows gold in a wave 4 diagonal triangle with one final wave down left to go.

What would be the signal that gold is not complete in its downtrend ?

It takes a weekly close below the GREEN CHANNEL LINE at 1222-1240 to warn that gold’s bear market low may not be in place and that something big is still underlying in the markets. As mentioned, one final factor is that the lower dual gold trend line at 1050-1150 is also a support line of consideration.

What Next?

What it comes down to is whether the cycles have inverted. If they have then we are going to begin a pullback into the end of July. If they have not and gold bottomed early on Monday, then we have two more weeks of upside. We should have a better clue early next week.

Bottom Line

The key now is whether we have finally conquered 1322. If we have, then we’re heading towards 1360-1372.

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