4 Year Cycle low for Gold Miners 2


Early this year I expected important turning points for precious metals. This was primarily based on a long term USD analysis. Precious metals have turned quite bearish in recent months suggesting long term secular tops have been seen in the metals. While this is still likely the case, a 4 year cycle low for the sector is due and I believe we saw it mid-May.  A retest of recent highs for the metals is always possible as the very long term cycles are still pointing up. I believe we are at the same point in the commodity cycle as the late 1940s, however I’ll leave that discussion for a future post.

I follow the gold miners via the HUI index, the Amex Gold Bug index, a basket of global gold mining stocks. I have tracked this index for many years and I believe the cycles for the gold miners are different from stocks or equities in general.  Large cycles such as the Hurst 4.5 and 9 year cycle  periods for stocks are slightly shorter at roughly 4 and 8 years for precious metals.

The metals and the miners are due a 4 year cycle low, which is the mid-point of the current 8 year cycle. There was a chance that this low arrived last summer, however the 4 year cycle has extended and is forming now at 55 months. In 2004 and 2005 the 4 year low formed as a straddle and there was a possibility this would happen again between last summer’s lows and this point in time. The sector turned very bearish early this year and the 4 year cycle likely arrived with the recent May lows. I ran an analysis with Sentient using the ICM setting and I have bravely pinned the 4.5 year low to mid-May.

There are many signposts that the 4 year low is forming based on sentiment, COT analysis, etc. What we need now is price action to confirm it. A bullish cycle for this sector is a rally for 3 weeks and a pullback into a 3.5 week low, then new highs into at least the 4th or 5th week. We should note that since the September 2012 highs, the HUI has not put in a higher weekly close beyond 3 weeks. We need to see this change before we can be confident a change in trend is occurring.

A 3.5 week ( 18 – 20 calendar days) low is due today IMO, and a new high this week which exceeds the April 25th high would be the first real sign of an important bottom for the HUI. If this occurs, I would still expect a pullback into late June which would mark the 7 week cycle low. If we do not see this type of price action, the status of the 4 year cycle will be in doubt.

Looking further out, the rally that we are likely to see from a 4 year cycle low will be impressive, and will likely surprise many later this year and next. If history repeats, the gold miners may under perform,  but both gold and silver may put in new highs next year or beyond.

I like to look at the 9 year FLD for marking important future highs. It has done a terrific job since the start of the gold bull in 2001. I’ve highlighted 3 important points in time and I will be very curious to see where we are in August, then Q1 2014, and finally in Q4 2015.

While I am bullish the precious metal sector, we need to see confirmation via price action in the coming week or two.

cheers,

john

 

 

 

 

 

 

 

 

 

 

Price action has yet to confirm

 


About SilentOne

I am a retired Chemical Engineer. I became a house dad back in 2000 and then devoted all my free time to the markets. After years of technical analysis study I decided upon Hurst cycles, which has been my primary method since 2007.


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2 thoughts on “4 Year Cycle low for Gold Miners

  • Luis

    pseudo trend in gold down, don’t expect much, gold miners should form long extended bases once they hit bottom. We are moving out of gold and into equities. US market will be no. one followed by Japan. Emerging will bottom with commodities.

    • SilentOne Post author

      Luis, I agree that US markets are very bullish and leading all markets. And your thought that gold equities will not rally much but bottom out in a slow process is quite possible. This scenario is very likely IF the 4 year low was formed last year in May 2012 (instead of seeing a 4 year low here in 2013), and in that case the price action will be very poor for gold miners well into 2014/2015.

      cheers,

      john