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I think next
week will mark a major turning point in the gold market. Depending on whether
the dollar continues higher or turns back down we will either see a resumption
of the D-Wave decline or this will just turn into a normal run-of-the-mill
intermediate degree correction followed by another leg up in this 2 1/2 year
C-wave advance.
First the pros:
The COT report has now reached a maximum bullish level on the commercial
contracts. In the past this has always marked major bottom turning points.
 
Sentiment & breadth have reached extreme bearish
levels (contrary indicator).
Chart courtesy of sentimentrader.com
It's possible that gold has formed a small T-1
continuation pattern (A move followed by a sideways range often precedes
another move of almost equal extent in the same direction as the original
move. Generally, when the second move from the sideways range has run its
course, a counter move approaching the sideways range may be expected).
There is a small problem with this interpretation as
the second leg of a T-1 pattern is generally slightly smaller than the first
leg.
And now the cons:
The current intermediate cycle is too short. Barring
a shortened cycle, which does occur rarely, there should be one more leg down
into the normal timing band for an intermediate degree cycle bottom (20-25
weeks).
Also the HUI mining index is potentially forming a
megaphone topping pattern. If gold does have one more move down into a true
D-Wave bottom then the bounce off the lower trend line should fail followed
by one more aggressive move lower.
Also there is a much larger T-1 pattern in play that
fits the normal parameters much better than the smaller version.
You can see from the chart above that unlike the
smaller T-1 the larger version does feature a second leg slightly smaller
than the first, and if this pattern is playing out then we need one more move
lower to test the midpoint consolidation zone.
Right now the battle is being fought at the $1600
level. So far every time gold reaches that level buyers step in.
If however gold closes below $1600 that would be a
serious warning sign that the current daily cycle will be left translated and
that gold is indeed caught in a true D-Wave decline. If that's the case it
still needs to test the consolidation zone of the large T-1 pattern and the
intermediate degree cycle will bottom in the normal timing band (November).
If this scenario unfolds then we can look for an A-wave advance to begin once
that final D-Wave bottom is in place.
As I have noted before A-waves usually test but fail
to exceed the prior C wave top. They are almost always followed by a lengthy
1-1 1/2 year consolidation before the next leg up can begin.
In my opinion next week is going to be critical.
Either the current daily cycle is going to break down below $1600 in a left
translated manner, in which case we will probably see gold continue sharply
lower to test the 75 week moving average and the consolidation zone of the
large T-1 pattern. Or, if gold can gain some traction and breakout of the
recent trading range to the upside then the smaller T-1 pattern comes in to
play and we should see gold make another run at $2000.
I've had quite a few requests for a trial subscription link, so I'm going to
add a permanent trial subscription offer - $10 for 1 week of full access to
the premium SMT report. If you decide you like the premium newsletter your
subscription will automatically convert to the yearly rate after seven days.
If not, just cancel your subscription prior to your week expiring by
following the directions on the premium website homepage.
Toby Connor
Gold Scents
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