Gold Cycle Inverted

By AG Thorson

Sunday, December 30, 2018 4:30 PM EDT

It’s clear to me now that Fed chairman Powell’s November comment aborted gold’s expected December low. Prices were set up for a late-November breakdown and mid-December bottom – just like years past. That changed instantly with Powell’s comments and turned what should have been a left translated daily cycle into a right translated and inverted cycle. Unfortunately, that stripped us of a quality December buying opportunity.

So now that it’s clear the cycle inverted what should we expect?

I think miners may have already topped. If correct, we should see a 1-3 week decline.
Gold – it should peak next week if it hasn’t already.
Silver – we could get a spike high, and it may be the last to top.

Overall, I think prices are coming into tops and should correct into mid-January.

Short-term – I’m thinking about trying JDST again. I was shaken out last week, but I think it may be worth another shot- I’ll decide Monday.
Medium-term – I’ll need to see the depth and quality of the next correction. If it’s constructive, I may attempt net-longs. I’ll be monitoring silver closely. Prices must hold the $14.80 level in January to prevent another breakdown.
Longer-term – I think precious metals and miners are gearing up for another nice run. From 2000 – 2010 tangible assets like commodities were the outperforming asset class. From 2010 – until NOW paper assets (stock/bonds) were the place to be. I think we are in the process of switching back to commodities.

GOLD WEEKLY

Prices were breaking down from the bear flag into what would likely evolve into a mid-December low – just like the last several years. The decline stopped suddenly in late November when Fed chairmen Powell said rates were close to neutral. Just two months earlier he announced rates were far from neutral. I believe his dovish retreat aborted the November decline. The fact that gold continued to rally after the Fed raised rates on December 19 and called for two additional hikes in 2019 suggests prices are returning to a bullish bias. Consequently, it looks like the $1167 low will hold for the foreseeable future.

GOLD DAILY

Powell’s comment aborted the breakdown and recalled the December low. So what do we do? I’m fairly certain prices will form a short-term (1-3 week) top next week. From there I’ll look for a pullback to perhaps the 200-day MA. At that point, I’ll have to decide if I want to return to net-long or wait for the next 6-month cycle low.

SILVER DAILY

Prices may be preparing to spike into a top. Sometimes silver will rally for a few trading days after gold peaks. The MFI is oversold, and prices are at the 200-day MA. There is significant resistance between $16.00 – $16.20. We should get a pullback in early January. The $14.80 level is key. Closing below $14.80 would suggest a breakdown. Whereas, a pullback that tests and holds above $14.80 would recommend an upside breakout.

CRB WEEKLY

The CRB is in the target box. I expect a low to form in Q1 2019. A weekly close above the 10-week EMA will establish a bottom and likely 3-year low.

US DOLLAR

The MFI in the dollar touched oversold last week, but prices have been unable to confirm a low. We could get one more quick drop before the cycle bottoms. That may correspond with a top in gold and silver.

GDX

I believe miners may have topped before gold and silver. If correct, then we should get progressive closes below the 10-day EMA. The next cycle low should appear in mid-January.

GDXJ

Same with juniors. I think prices are rolling over and we should see a decline into mid-January. From there we will have to decide if it’s worth going long.

JDST

I was whipsawed out of my short last week. Gold miners look like they are rolling over into mid-January; I’m tempted to take another stab at JDST. I’ll see where prices open on Monday and decide then. If the trade works out – I think prices could reach $70 – $75 by January 18th.

WTIC MONTHLY

I’d prefer to see oil dip below or at least touch the lower Bollinger band before scaling into energy positions. I think the final low will occur in January or February 2019. Furthermore, the CCI (below) should dip below -100 to complement the buy signal. Currently is at -96.89.

S&P 500 MONTHLY

Will the 50-month EMA save stocks as it did in 2016? Stocks were due for a pullback after the monthly MFI pegged out at 100 in late 2017. Now prices need to hold (no close below) the 50 to maintain the longer-term bullish posture. Closing below the 50 would prescribe a bear market in stocks.