Sunday, July 18, 2010

CARPE AURUM

Just like the stock market, gold runs in cycles (all markets do because the humans that trade these markets go through periods of optimism and periods of pessimism).

For the purposes of this discussion we will concentrate on the intermediate and daily cycle, after a quick explanation of the two larger degree cycles.

At this point all one needs to know is that gold's 8 year cycle bottomed in `08 and isn't due to bottom again until 2016.


The yearly cycle bottomed in February, and no yearly cycle except the one at the 8 year cycle low has ever moved below a prior yearly cycle low since the secular bull started in 2001.



That means in order for gold to move below $1044 we would have to entertain the fact that the current 8 year cycle has already topped in only two years. That would also mean the secular bull has likely topped.

I just don't buy that, as no secular bull in history has ever topped before reaching the bubble stage and gold is clearly a long way from that. So all this nonsense about gold falling back below $1000 is just that - nonsense. The odds of a move back to $1000 anytime during the remainder of this bull market are probably less than 1%. I don't know about you, but I make it a rule to never bet on something with odds of success at only 1%.

Now let's move in and take a look at the next larger cycle, the intermediate cycle. This cycle has averaged 18 weeks since the secular bull began in 2001, but has lengthened to 23 weeks after the global debt problems began in `07.




My guess is that the Fed's extreme monetary policy is acting to stretch golds intermediate cycle slightly. As you can see from the chart, gold is now about to enter the 24th week of the current intermediate cycle. This of course means it's becoming extremely dangerous to sell gold. On the contrary, this is the time where savvy investors want to be looking to add to positions. Remember, this is a secular bull market after all, and you only get this kind of opportunity about every 5 to 6 months.

You certainly don't want to blow it now as you will have to wait another half year before it comes again, and since this is a bull market the next opportunity is going to come at higher prices. For all you traders who claim that you are going to back up the truck when gold experiences a pullback, well you are getting your pullback right now. The question is, will you follow your own advice?

Now let's look at the smaller daily cycle and see if we can pinpoint a closer time frame for when we should be looking for the final bottom of this intermediate cycle.


On average the daily cycle tends to run about 20 days. However, it's not completely out of the question to see a cycle run as long as 30 days occasionally.

I will also note that we usually see a failed daily cycle as gold moves into a final intermediate cycle low. With that in mind here is where I think we are in the current daily cycle which, by the way, does appear to be a failed and left translated cycle as it was unable to break to new highs.



It appears we are now on day 16 of this cycle. Since we know that the average duration trough to trough for a daily cycle is 20-30 days, we can extrapolate a reasonable timing band for a final bottom somewhere in the next one to two weeks.

Here's what to look for. First off, I think gold will need to retrace at least 50% of the intermediate rally. That would come in around $1155.

Next, I would like to see sentiment turn extremely bearish. We are already well on our way to that happening as public sentiment is now nearing the same levels we saw at the February intermediate cycle bottom.

About this time we will see the conspiracy theorists start blaming a mysterious gold cartel for what in reality is just a normal correction within an ongoing bull market, and one that happens like clockwork about every 20 weeks.

So the bottom line is we are on the verge of getting one of the best buying opportunities we ever get in a bull market sometime in the next week or two. The question you have to ask yourself is, will you take it or will you let the "technicals" talk you into missing another fleeting chance to accumulate at bargain prices in the only secular bull market left? Let's face it, at intermediate cycle bottoms the technicals are not going to look like a bottom. Instead, they are going to look like the bull is broken.

Only those people who can think like a value investor and keep the big picture firmly in mind are able to buy into an intermediate cycle bottom. You have to make a decision. Are you going to seize the opportunity or are you going to let the bull trick you into losing your position?




Carpe Aurum
(Seize the gold)

22 comments:

  1. So gold could go down a little bit more to make a near term low, then bounce up to start another up cycle?

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  2. Gold is getting very deep in the intermediate cycle so yes we ar going to find a bottom sometime soon and then we will begin the next leg up which should last another 15 to 20 weeks.

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  3. Thanks for your work.

    So you think we will see Gold at roughly 1500 USD after the next up cycle?

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  4. I do think gold will go to $1400 - $1500 during the next leg up into the high demand fall season

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  5. I think the temptation is gonna be to try to wait for the absolute bottom of this intermediate cycle. Good luck picking it. things could turn around really fast. not only is the end of the cycle coming shortly, but seasonality is also aligning to move things upward at any time.

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  6. That is exactly why shorting a bull market is a losing strategy. You never know when the bottom is going to come and you risk getting caught in a vioent move out of an unexpected bottom as the intermediate cycle bottoms.

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  7. Oh, Look Toby.

    The market is ready for another 300 pt bull bounce that last say, a morning.

    lol.

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  8. How hard is this to understand? If we see a Dow Theory sell signal then yes I will say the bear is back.

    Are you really so dense you can't understand that?

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  9. I do hope you aren't trying to pass this off as 'Research'. Regardless of what ones thoughts are on Gold, this is anecdotal claptrap.

    The chances of a move below 1000 are 1%...where did that come from?....and then you wouldn't bet on something with a 1% probability...a number you have plucked out of thin air.

    Just looking at COMEX Gold futures, they have December 1000 puts as a 10% delta worth more than $7....and that is December this year - not 2011, 2012, 2013 or wherever your cycle will finish...

    One the subject of your '8 year cycle'....is it me, or does the previous 8 year period go counter your entire existing argument?...certainly looks that way....

    There are many reasons one can to build a bullish case for Gold....this is dreadful.

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  10. Hey if you think I'm wrong then short gold :)

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  11. Toby said...
    Hey if you think I'm wrong then short gold :)

    Toby, I didn't say you were 'wrong', I said your analysis had more holes than a teabag. It is saying things like 'the chances of going below 1000 are 1%' and that 'we are in an 8 year cycle' is the reason many people deride the blogosphere.

    My gripe has nothing to do with the future direction of Gold, more what you claim to be 'analysis'.

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  12. Well obviously 1% is my opinion you can either agree or disagree.
    If you disagree then short gold till it moves back below $1000.

    But the 8 year cycle is not disputable. Pull up a 30 year chart of gold and you will clearly see a major bottom about every 8 to 8 1/2 years.

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  13. A major bottom every 8-8.5 years (says nothing for when highs come by the way).....So why not tell people the 2001 low came after the market declined for 5 years.....might not make it all seem quite as bullish might it....

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  14. The 8 year cycle is a gold cycle not a stock cycle.

    You would be wasting your time trying to fit an 8 year cycle to the stock market.

    But you are exactly right cycles are worthless for trying to pick tops ... unless a cycle happens to run very deep into the timing band for a trough. In that case you can get pretty close to a top simply becuae you know the cycle is running out of time. The top has to be close in order to drop into the trough before the running out of time.

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  15. Hey G-mon. How are you doing.

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  16. I'd like to see the chart for the late seventies and early eighties...

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  17. You can find historical chartshere

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  18. This shoe-maker with wonk calls on the dow and s&p now has his butcher fingers on major gold down predictions?

    You're reversed buddy!! Upside down clown.

    This Toby guy strikes me as a major Hoodoo.

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  19. Toby, Chuck Cohen here. Let me say that your work is really different and logical. I think one of the better sentiment clues are the number of angry bears that comment on articles that predict a rally in stocks. I'm sure this is applicable to you, also.

    There is just way too many people who couldn't spell deflation a year ago that are on the hyper-deflationary bandwagon. The market and gold are in lockstep for the foreseeable future.

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  20. Gary's fine work stands on it's own. I don't see why he needs the "Toby Connor" alias, just to cut some marketer in for some profits.

    Don't let marketers siphon off your talents, G. In the long run, you'll be far richer keeping what your worth.

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  21. My partner isn't just some guy he's a good friend. He talked me into doing the site so he could market my articles.

    If it was up to me I would rather just be out climbing. Which I usually am anyway as he does all the work. I just write an article every now and then.

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  22. The multiple identities takes away from the reliably and the purpose of your work. Keep one character.

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