Sunday, October 10, 2010


Lately I've been seeing quite a few analysts calling for a top in gold. I have to say these analysts don't really understand what's happening. If they did they would know that far from topping, gold is just getting started.

Just as a preface let me point out that the fundamental driver of this leg up in gold is the same driver that it's been for the entire 10 year bull market; currency debasement.  Only now every country in the world is getting in on the race to the bottom. That being said it's the dollar's turn to collapse. The Euro had it's spell earlier in the year and now that cancer has infected the world's reserve currency...just like I said it would.

Let me show you a long term chart of the US dollar so you can get a clear picture of what is unfolding.

About every 3 to 3 1/2 years the dollar drops down into a major cycle low. I call it the 3 year cycle low but the average duration is 3 years and 3 months trough to trough. The dollar is now on its way down into that major bottom. After a brief bounce off the `08 all-time lows of 71 later this year I expect we will see the dollar roll over early next spring as the final plunge begins and the currency crisis reaches a climax.

Next let me show you a chart of the smaller daily cycle.

This smaller daily cycle tends to run about a month (18 to 25 days)trough to trough. We are now deep in the timing band for this cycle to bottom. Once it does (it may have on Thursday) we should see a weak rally, possibly back up to test the all important pivot at 80. That should pressure stocks and gold down into their respective cycle lows. I suspect many will take this as a sign that gold's run is over. It won't be.

Gold's drop into the now due cycle low shouldn't last more than 4-8 days. That's about how long we can expect the dollar rally to last as it will only be a dead cat bounce to relieve oversold conditions and ease sentiment extremes. Then the dollar will roll over into another decline that should bottom in early November and will likely test the 74 pivot. Again after another weak rally the dollar will crash down into a daily, intermediate and yearly cycle bottom that should test the `08 lows at 71. That is the point where the gold rally should take a more significant rest.

As I noted in the above chart the intermediate dollar, and gold cycle for that matter, runs on average 20 weeks. Last week marked the 9th week of the dollars intermediate cycle. It's way too early to look for a major bottom yet. If the cycle runs the "normal" 20 weeks then we won't get an intermediate bottom until late December. Considering the last yearly cycle low came in early December of `09 mid December should be a fairly accurate target for an intermediate bottom.

I can assure you that while the dollar crisis intensifies this winter gold will not be sitting still and it certainly won't be topping. As the dollar crashes down to test the `08 lows I expect we will see gold rocket to at least $1450 and $1550ish is probably a more realistic target.

But don't forget the larger three year cycle low isn't due to hit until next spring/summer. The dollar rally out of the yearly cycle low in December will also be a dead cat bounce, although it should last at least a month or two, but ultimately it too will fail and the true consequences of Bernanke's monetary policies will come home to roost as the dollar crashes down into the three year cycle bottom and the currency crisis reaches a climax next year.

That will drive the final leg up in this huge C-wave advance, possibly as high as $1700 -$1800.

So yes gold is due for a minor corrective move but it is a long way from the final topping process of the current C-wave that began in April of last year when the B-wave decline tested 850 which by the way was the top of the 1980 bull market.

Folks we are never going to see $850 gold again. And I seriously doubt we will ever see $1200 gold for the remainder of this bull market.


  1. Great post Toby. I just wanna ask few questions about dollar.
    What do you make of the fact that dolar is 1% short of hitting bottom trend line of the falling channel on USD/CHF that dates back to 2008., and that AUD/USD just hit top of the rising channel dating from 2008.USD/JPY also hit lower trend line and fell through falling wedge.
    AUD and CHF are very much conected to golds performance. Should this long term channels behave the way they are supposed to, we should see gold much lower, around 1000$ which also is a target of the rising wedge pattern on gold.
    What do you think?

  2. I think you are wasting your time with chart patterns. History is pretty clear one will never make any long term profits by trying to trade solely based on charts.

    Charting is the least of my tools. First and foremost I follow the secular trend and the fundamentals. Second comes cycles analysis and sentiment. Third I watch smart money, (COT) and money flows. A far distant fourth is technical analysis.

    If I had listened to the chartt readers I never would have bought at either the February or July bottoms :)

  3. Toby,

    I can't believe all the top callers here over the weekend. I saw one article titled "Time for the big correctio in gold.... And it's going to be fast and ugly". I mean what are these people smoking? It's almost as if anything that rallies in great fashion has to always somehow get crushed or something. I don't think any selloff happens because of where the HUI is. It's just starting to break out here and I think it has a huge rally before any correction of any sort. I wonder what they'll be saying when this gold rally just keeps on going.

  4. Toby- you felt at one time that HUI would break above $520 and once it did it may never trade below there again. The dollar is about to turn up, Gold you STILL feel that the HUI can resist a pullback below $520 (its at $521.26 here & now)and go sideways??

    you said charts are a waste of time, but I see a break (on a 1 1/2 yr weekly or daily)of a triangle pattern on HUI that would retest at $490 (and the 50 ema is there too). Your opinion? thx

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  6. In a secular bull market the risk is always to the upside. Yes the dollar is due to bounce. Yes that will probably pressure gold and by extension gold stocks down for a bit. Am I willing to bet on it and lose my position? No way in hell. Where would I be if gold ignores the dollar bounce and the miners hold the breakout and get busy rocketing higher?

    I'd be pulling my hair out that's where I'd be. Just sit tight with positions and if a correction does come know that it will be brief.

  7. Thx , and tonight the dollar is now up, as well as gold,silver maybe the miners do go sideways or take off...even if gold goes down. If minors go down, I will but dips or leverage...thx

  8. Toby,

    You mentioned that gold could be in a runaway mode.

    Could it be possible that the dollar could be an a fallaway (the opppsite of runaway) mode?

  9. Not really, markets go down differently than they go up.

  10. re: noah's comment - "I can't believe all the top callers here over the weekend. "
    this is an important ingredient for things to go higher.
    when everyone and his brother is saying 'buy gold!' that is when you start averaging out of your position.

  11. fact,

    in addition to what you say (that they all say buy gold), they will also tell us it's so different thins time that gold can never drop

  12. Toby, it looks like there will be no bounce in dollar. It just worked out litlle bit of oversold condition and it goes down again.Incredible

  13. hi Toby, read 2nites report

    right now the dollar just fell to 76.60 , should be interesting.

    question, now that the HUI broke away from $520, do you think it will take off even if gold goes down? I wonder if it has a different cycle? you have different cycle timing for the mkts, Gold, and the Dollar...could the mining stocks (GDX,HUI) have different cycle here, continuing up?


  14. Fact is gold is up... Don't argue with it! You watch... After the elections there will be a sell off for sure and the top callers will be out in full force. Listen this is no time to be nay saying precious metals. At this point I believe we've entered into a phase where you will from now on be truly exchanging you fiat money for real money. This was always the case but now it's clear that the horse is out of the barn. If you don't have physical metals you should do so now. You don't want to be in a position where gold and silver are an official part of the monetary system one day in the future and you end up having to pay way more with your devalued banana republic money, or whatever other currency the central planners give you and tell you is money. It is very important that you back your currency up with gold and silver, because one thing is for sure your government is not going to do such a thing for you. Strange how China has basically told its citizens to go down to the banks and buy gold and silver. Why hasn't our government? This is a bull market like Toby says and today he was right... The risk is to the upside! Toby, what do you think about the HUI? Are we finally setting sail?

  15. I don't think the miners will diverge form gold but they may resist any gold correction to some extent because they are in brekout territory.

  16. What are your thoughts on gold prices in respect to the upcoming elections if the republicans win the house?

  17. It doesn't matter who wins in the elections. Ben already dodomed us to a currency crisis when he embarked on QE1. All he can do now is make it worse.

    I can guarantee that the republicans aren't going to come into office and immeidate call for the fed to drian liqudity a force the deflationary depression on the population.

  18. Toby, was this dollar bounce? Is that it? And how do you put that finished dollar correction in perspective with possible SPX correction? Is it possible that there will be no SPX correction because dollar continues to freefall? Is it also possible that gold just continues to march on without correcting until next cycle ends? Thanks

  19. No it appears the dollar has entered an extended cycle. However today is the 28th day and the normall timing band runs 20-28 days so it actually hasn't stretched just yet. I think it will though. Probably by an extra 2-4 days.

  20. And then? Will dollar bounce or will new cycle begin? I dont know, dollar just looks too oversold with RSI at 17.That is ridicoulous, but then again, markets can behave irrational much longer than i can stay solvent.


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