Saturday, May 28, 2011

GOLD T-1 PATTERN?

There is quite a bit of speculation lately as to where the impending intermediate cycle decline will take gold down to. Today I'm going to throw my guess into the fire.

Some people expect gold to drop to  $1400. Some $1300. Some even doubt that gold will ever go down again. However after watching gold for years and studying its history I think I can safely say that gold never misses an intermediate decline. Next week will be the 18th week of the current intermediate cycle. That means gold is now in the timing band for a bottom. If gold is in the timing band for a bottom a top can't be far off.


In the weekend report I discussed the impending stock market yearly cycle low and three year cycle low in the CRB that are both coming due together this summer. A yearly cycle low in stocks is the second most severe selling event ever seen in the stock market, only exceeded by a four year cycle low, which by the way is due in 2012. The three year cycle low in the CRB is the single most severe selling event for commodities.


By a twist of fate these two major selling events should happen simultaneously this summer. The combination of of these two major cycles bottoming together will almost certainly intensify selling pressure into the stratosphere. In an environment like that fundamentals will go right out the window.

In theory gold put in it's yearly cycle low last January at $1308. Barring something extraordinary I would not expect that low to be violated. However we could very well see something extraordinary. 

While the pattern isn't "clean" there is an ongoing T-1 pattern in play on the gold chart that suggests that $1575 probably was the top of the current C-wave and if that is so and the T-1 pattern plays out as expected we should see a test of the the mid-point consolidation during the summer sell off.


That consolidation zone for gold's T-1 pattern comes in at roughly $1225- $1250.

Of course I have no idea if this will play out as we move into the summer but if in July gold touches the $1250 level I think it will be the last great bargain we will get in the secular gold bull market. 

7 comments:

  1. "In an environment like that fundamentals will go right out the window" you say.

    I say In an environment like this technicals will go right out the window.

    You risk being out of the market when the really big moves are at hand.

    Technicals are great for the general ebb and flow of the markets but there is something else afoot here, and its bigger than technicals.

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  2. The T-1 pattern is just a guess. An intermediate cycle low though is about as close to a certainty as we ever get in the market.

    Gold has never missed one that I know of. And the few times where the cycle has stretched long it did so because the decline had a second leg down. Not because it rallied for an extended period.

    The uncomfortable fact (for longs anyway) is that gold's intermediate cycle is now in the timing band for the move down into a major bottom. The average percentage decline for an intermediate low is between 10-15%.

    This particular decline is going to occur simultaneously with stocks and the CRB dropping into major cycle selling events. This kind of coordinated selling panic will put extreme pressure on every asset class and that includes gold.

    Margin calls have that effect. They take even the good stuff down.

    Ultimately gold will recover because the bull is not over but does one really think they are easily going to ride out a 10-15% correction in gold? You're fooling yourself if you think you are.

    At the bottom of something like that it's going to look like the gold bull is over. Anyone still holding is going to be sorely tempted to sell at the bottom. And the recovery will be rough and hard to hold on to at first.

    Trust me, the bull is just about ready to give us the biggest shake out of the last three years. It will be much easier to endure if you are in cash.

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  3. Gold may go down as Gary says but that will be a buying time for physical gold. As long as the dollar goes down and debt increases the fear will push gold higher. I see trouble ahead. The economy is getting worst with debt and inflation and that is going to get worst. People are buying silver like crazy right now as it has gone down at the present time. Gary is right about getting into cash but what happens to the cash when the dollar goes to nothing? I would rather hold gold and silver than have nothing.

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  4. What Gary said like 1,250-1,200$ is "Maybe",but
    1,650-1,700$ is "Definitely" .

    What you choose ?

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  5. We are in an unstable country. The truth is not being told to the American people out of Washington for fear of chaos.
    You have to use your own judgement and your gut feeling on what to do. Gary and Toby are giving warning signs to you. If they add more debt (QE3), we will never get out of debt. We will have a crash, don't know when. If they don't add more debt, 30-40 percent in this country will starve. We are hanging by our finger nails. No one knows what they will do next but I believe they will do the QE3 and just keep on adding to the debt until we crash again. My opinion only.

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  6. I really think for those holding miner stocks and gold ETF's that going to cash right now, short term, is probably wise. Aside from the seasonality of the market that usually brings a summer decline, we also have the official end of QE2 looming which might spook the markets before the end of the month. Getting out now and buying back in after a substantial drop will be very profitable. If you believe a correction is coming. I lean towards that view. My 2 cents.

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