ST Outlook – GOLD (19 September 2011)

In last week’s GOLD Outlook I wrote about looking for confirmation of the 4 & 1/2 year cycle peak:

The orange line is the median price, which would need to cross below approximately the 1800 level to confirm the peak of the longer cycles. If price fails to fall below this level in a convincing manner (as befits the “bounce” out of a 4 & 1/2 year peak) over the next two weeks, then we will expect further cycles to complete before the 4 & 1/2 year cycle peak is formed.

As price fell to a low of 1765.40 on Friday (we are tracking the price of the Globex future contract for Gold) one might have been tempted to think that this was the confirmation we were waiting for. However it is the median price that we are watching. Here is an updated chart of this price and the relevant FLD and VTL lines:

Median price chart

As can be seen, the median price has crossed below the 5, 10, 20 and 40-day FLD’s, confirming the peak of 1923.70 on 6 September 2011 as a peak of the 40-day cycle. Price has also dipped below the 20-day and 40-day VTL’s apparently confirming this peak as a peak of the 80-day cycle. However the crossing of the VTL’s is by no means “convincing”, and price looks as if it might be experiencing some support at those levels. Hurst pointed out that when a VTL is crossed, it is crossed (as opposed to an FLD which is often crossed back-and-forth many times), but before I will accept this confirmation of the 80-day cycle peak I would like to point out an interesting situation has developed here which will be resolved one way or the other over the next two or three days, and so I am waiting for that resolution. This “interesting situation” is the 80-day FLD which can be seen rising up like a wall in front of price (the cyan-colored FLD line). I have found (and this is my experience, not something that Hurst wrote about as far as I know), that FLD’s often form support for price, and that price does one of two things when it approaches an FLD:

  • It either crosses it clearly (usually at an approximate 90 degree angle) – for example the crosses of the 5-day, 20-day and 40-day FLD’s on 7, 10 and 15 September respectively.
  • Or price “rides up” the FLD, with the FLD line providing good support.

For this reason I am not going to “swear by” the recent crossing of the 40-day VTL. Because we are looking for the confirmation of such a very long cycle peak, I am going to watch with interest over the next two or three days and see how price interacts with that 80-day FLD. When confirming a 4 & 1/2 year cycle I am happy to wait two or three days longer.

I expect one of two possible things to happen:

  • If median price crosses the 80-day FLD (at a clean 90 degree angle) then I will accept that the 80-day cycle peak is confirmed. It would be (by the Principle of Synchronicity) the peak synchronous with the 40-day cycle peak that was confirmed at 1923.70 on 6 September 2011. If that peak is also confirmed as a peak of the 80-day cycle then I would accept that it was also a peak of at least the 18-month cycle, and probably the 4 & 1/2 year cycle, and therefore would expect the price of GOLD to drop, and not regain the current levels for many months (or years if indeed the 4 & 1/2 year cycle has peaked – I will explore this detail in a future ST Outlook).
  • If however price instead “rises up” the 80-day FLD then I would suspect that peak on 6 September 2011 was a peak of only the 40-day cycle and that another 40-day cycle needs to play out before we see the formation of the very long cycle peak (4 & 1/2 year or at least the 18-month cycle).

And so the next few days are going to be very interesting. If the long-cycle peak is confirmed (and if it isn’t we won’t have long to wait before it is), then this long-term picture showing the 40-week cycle projection gives us an idea of how price is expected to fall over the coming months:

40-week cycle projection

I am often asked whether I believe that Cyclic analysis works well in conjunction with other technical theories, and the answer is definitely YES. In particular I think that other approaches help to clarify issues that are unresolved in cyclic analyses and vice versa. I am by no means an Elliott Wave expert but I think that Elliott Wave analyses often help to confirm or to question a cyclic analysis. And so for what it is worth I’d like to point out that the move down from the 6 September 2011 peak looks very much more “corrective” than “impulsive” in Elliott Wave terms (look at the degree of overlapping prices in the chart below) . Of course it could be a “leading diagonal” pattern that is forming, but it seems more likely that the move down is still part of a “corrective wave 4″, and that “wave 5″ will push prices up to a final peak, which will be the peak of the long cycles that we are expecting.

Corrective price movement

About David Hickson

I have been trading for over 20 years, but only had any success after discovering Hurst's cyclic principles. Unable to find any software to speed up the analysis process I created Sentient Trader software, which now pretty much does all the analysis for me. I am a film maker and a TV director, but nowadays I mostly provide consultation services to professional traders and fund managers, helping them to integrate Hurst analysis into their trading. I'm South African and live with my family in Italy.

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