Gold Consolidation Formation Faces Important Test

| March 27, 2013


On March 15, our computer models generated a cycle low signal for the weekly chart of gold, indicating that the latest intermediate-term cycle low (ITCL) was likely in place. Price behavior during the last two weeks has confirmed that a new intermediate-term cycle is in progress.

In September 2011, our computer models predicted the likely development of a long-term correction in the gold market. The top formed as anticipated and the subsequent correction developed into a consolidation pattern that favors an eventual resumption of the secular bull market from 2001. However, the current intermediate-term cycle faces an important test and market behavior during the next several weeks could provide a meaningful signal with respect to long-term direction.

The short-term cycle has maintained a bearish translation for the past several months. However, a cycle low signal was nearly generated today, indicating that the latest short-term cycle low (STCL) may have formed during the previous session, and the short-term cycle is on the verge of transitioning to a bullish translation.

Technical indicators on the daily chart are effectively neutral overall, suggesting that direction is in question as prices hold above previous lows of the downtrend from October.

Our Gold Currency Index (GCI), which tracks the intrinsic value of gold as an international currency, is also holding near comparable short-term highs. However, a slight positive divergence has developed between the GCI and gold in US dollar terms. Notice that the GCI momentum indicator (MACD) has moved into positive territory, while the gold momentum indicator remains in negative territory. As longtime readers know, divergences between the GCI and gold in US dollar terms usually forecast the direction of the next meaningful move, so the slight positive divergence is a bullish short-term development. It will be important to monitor this divergence during the next several sessions.

The consolidation formation in gold is undergoing an important test and a meaningful signal with respect to long-term direction could occur during the next several weeks. Therefore, it will be important to monitor the character of the rebound off of the last ITCL closely.


We will identify the key developments as they occur in our daily market forecasts and signal notifications available to paid subscribers. To read the full version of this commentary, upgrade to a paid subscription.

We will identify the key developments as they occur in our daily market forecasts and signal notifications available to paid subscribers. Try our service for free. If you are a paid subscriber, login to read the full version of this commentary.

On March 15, our computer models generated a cycle low signal for the weekly chart of gold, indicating that the latest intermediate-term cycle low (ITCL) was likely in place. Price behavior during the last two weeks has confirmed that a new intermediate-term cycle is in progress. The current cycle faces an important test and market behavior during the next several weeks could provide a meaningful signal with respect to long-term direction.

In September 2011, our computer models predicted the likely development of a long-term correction in the gold market. The top formed as anticipated and the subsequent correction developed into a consolidation pattern that favors an eventual resumption of the secular bull market from 2001. However, congestion support at the 1,550 level needs to hold for the consolidation formation to retain its neutral character. An extended rebound off of the last ITCL that moves above new congestion resistance in the 1,660 area would predict a return to the upper boundary of the trading range near 1,795. Alternatively, a weak reaction of less than 6 weeks in duration followed by a weekly close well below 1,550 would reconfirm the correction from 2011 and forecast substantial additional losses.

The short-term cycle has maintained a bearish translation for the past several months. However, a cycle low signal was nearly generated today, indicating that the latest short-term cycle low (STCL) may have formed during the previous session, and the short-term cycle is on the verge of transitioning to a bullish translation. An extended alpha phase rally of more than 5 sessions in duration that moves well above the last beta high (BH) near 1,614 would confirm the transition to a bullish translation and favor additional short-term strength. Only a quick reversal followed by an extended alpha phase decline that returns to the STCL in early March would favor a continuation of the current bearish translation.

Technical indicators on the daily chart are effectively neutral overall, suggesting that direction is in question as prices hold above previous lows of the downtrend from October.

Our Gold Currency Index (GCI), which tracks the intrinsic value of gold as an international currency, is also holding near comparable short-term highs. However, a slight positive divergence has developed between the GCI and gold in US dollar terms. Notice that the GCI momentum indicator (MACD) has moved into positive territory, while the gold momentum indicator remains in negative territory. As longtime readers know, divergences between the GCI and gold in US dollar terms usually forecast the direction of the next meaningful move, so the slight positive divergence is a bullish short-term development. It will be important to monitor this divergence during the next several sessions.

The consolidation formation in gold is undergoing an important test and a meaningful signal with respect to long-term direction could occur during the next several weeks. Therefore, it will be important to monitor the character of the rebound off of the last ITCL closely.

Tags:

Category: Commentary, Market Update


Comments are closed.