ST Outlook – Gold (3 October 2011)

Gold formed a peak on Tuesday 6 September 2011, and is now trapped in a Gap Pause Zone between the 80-day and 20-week FLD’s.

The question I would like to consider today is whether the peak on 6 September 2011 was a peak of the 54-month cycle (implying that this is the highest price we will see for Gold for a period measured in years), or whether it was a peak of only 18-month cycle magnitude (implying that this is the highest price we will see for Gold for a period measured in months).

The 54-month option

Above is the long-term chart we have been working with, which proposes that the 6 September 2011 peak was a peak of the 54-month cycle. On closer inspection there are some weaknesses to this analysis, most notable of which is the placement of the previous 54-month cycle peak in May 2006, instead of on the more visually prominent peak in March of 2008 (22 months later). Hurst claimed that the cyclic model of Gold has longer cycles than stocks, and so is it possible that the 22-month shift of that 54-month cycle peak  means that the analysis is one nominal 18-month cycle out?

By simply adjusting the analysis start date in Sentient Trader we can quickly reach an alternate analysis:

Another 18-month cycle to go

Now the 54-month cycle peak is more satisfactorily placed in March 2008. I have added a bar count from that peak (click on the chart to enlarge it), indicating that 42 & 1/2 months have passed, implying that 12 to 18 months are expected before the next 18-month peak, which would be synchronous with the 54-month peak. Note that I have changed the scaling on this chart to semi-logarithmic, a better way of viewing such a long period.

And so what is the implication of this analysis? If this analysis turns out to be the correct one, then the peak on 6 September 2011 was a peak of only 18-month magnitude. It still implies many months of lower Gold prices, but then a surge up to a 54-month cycle peak expected in April/May 2013.

How will we know which analysis is the correct one? The answer will be revealed by the interaction of price with the various FLD’s and VTL’s. Here are the FLD’s:

FLD levels

If price manages to stay above that 54-month FLD (the orange line), in other words manages NOT to cross below it, then the latter analysis (18-month peak on 6 September 2011) will triumph. It is very possible that price will “ride up” that 54-month FLD for a while as it provides support.

If on the other hand price crosses below the 54-month FLD (falls below the 1000-1300 level over the next year or so) then that action would confirm the peak on 6 September 2011 as a peak of the 54-month cycle. That is a long way down, and so in the meantime I will be favoring the more conservative, latter analysis which claims 6 September 2011 as an 18-month peak.

Here is the VTL picture:

VTL’s provide much more timeous information, and that is true here as well. If price (median price plotted on this chart) crosses below the 18-month VTL (labelled 20.3 M because that is the current actual wavelength of that cycle) then that would be confirmation of the 54-month cycle peak on 6 September 2011. If price manages to stay above the VTL (above 1500-1600 over the next 6 months) then the latter analysis will most likely be true (18-month cycle peak on 6 September 2011).

However, a word of warning about VTL’s: because they are more directly connected to the analysis (joining peaks and troughs as defined by the phasing analysis), they have a tendency to disappear or move if the analysis changes, and so although they are more timeous in their information they should also be treated with greater caution. If price approaches this VTL we will discuss it here and scrutinize the validity of this Valid (or perhaps not so valid) Trend Line.

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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