JM Hurst devoted an entire section of his Hurst Cycles Course to a consideration of the price movement of GOLD. Market Cycles are evident in the price movement, but would seem to be longer than the cycles found in the price movement of stocks and stock market predictions. In Sentient Trader one could create a custom nominal model with longer cycles, but in fact JM Hurst proposed that the market cycles were only about 50% longer. The Sentient Trader technical analysis software will allow cycles up to 50% longer than the nominal model it is working with, and so I have always used the default nominal model when analyzing Gold, and I have found that it works fairly well.
What is particularly interesting though is whether Gold’s price moves similarly to a stock (with synchronized troughs) or similarly to a commodity (with synchronized peaks). Looking at the price movement doesn’t provide any obvious answer (as opposed to looking at the price of coffee for instance which clearly has synchronized peaks). And so how do we answer this question?
Fortunately that is very easy. We simply have Sentient Trader perform an analysis one way up, and then perform an analysis the other way up.
Here is an analysis performed by Sentient Trader assuming synchronized troughs:
The analysis looks reasonable. There is nothing that stands out and shouts that we should be performing an inverted analysis (apart from the fact that the entire period from 1996 to 2011 looks like a very smooth inverted nominal 18-year cycle) . The troughs of the cycles (indicated by the diamonds) do look like probable troughs, and the cycles seem generally fairly well formed.
Let’s take a look at the analysis performed assuming that the peaks of the market cycles are synchronized (called an inverted analysis in Sentient Trader):
This chart is probably a little more difficult to grasp at first glance even if you are an experienced analyst. There is something that seems all wrong about having the analysis presented at the top of the chart, but this is how JM Hurst himself marked the peaks of cycles, with triangles at the top of the chart, and so Sentient Trader does exactly the same.
Interestingly the analysis here also looks reasonable. There are one or two questionable peaks, but overall it seems to be a perfectly valid analysis.
And so how can we answer the question? Synchronized peaks or troughs? One way of doing so in the situation when one wants to compare two valid analyses is to use Sentient Trader’s Analysis Rating information.
Here is the rating for the analysis performed assuming synchronized troughs:
And here is the rating for the analysis performed assuming synchronized peaks:
That is also interesting because both are fairly similar, but in my opinion the synchronized peak analysis wins the match because of the much better VTL and FLD confirmations. These values give an indication of how often a VTL or FLD projection was confirmed by price. Obviously the higher the confirmation the better the analysis. These are also important figures to consider when trading an instrument because trading decisions are made on the basis of VTL’s and FLD’s.
And so I would choose the synchronized peak analysis. Now let’s take a look at what the cycles are saying in both of these analyses and see if we can draw some conclusion about where the price of Gold is going over the next year or two.
First of all the preferred technical analysis, assuming synchronized peaks:
You will see that a prominent peak (the 60 month, or nominal 54 month cycle) is expected now, as shown by the nest-of-highs if I’m allowed to paraphrase JM Hurst.
And so this chart is clearly indicating that the price of Gold is peaking (perhaps it did so last week), and is expected to fall as it starts the next 54-month nominal inverted cycle, and is likely to fall for some time (a year or two).
Here is the picture provided by the technical analysis performed on the assumption that the troughs are synchronized:
This analysis places a trough of the nominal 54-month cycle in October of 2008, and indicates that we are now right in the middle of the central of the three 18-month market cycles into which the 54-month market cycle sub-divides (some analysts believe that Gold sub-divides into two 27-month cycles, but that will have to be the subject of a separate ST Outlook).
And so effectively this analysis is saying exactly the same thing as the inverted analysis: a peak is expected about now, after which price will fall, although in this case it will be falling into the nominal 18-month trough expected in early 2012, and then further to the nominal 54-month trough expected in late 2013.
As a matter of interest the above analysis looks very much to me like the early development of a 40-week straddled trough, which could provide a clear answer to our question:
- If a clearly defined straddled trough DOES develop, then that would indicate that we should assume that the troughs are synchronized.
- If on the other hand a straddled trough does NOT develop then that provides further evidence that we should assume that the peaks are synchronized.
And so in summary, I believe that Gold is losing its lustre (luster for our American users)!
Some may counter this argument by claiming that both the Stock Markets and Gold cannot fall at the same time because isn’t Gold the safe haven to take refuge in when the markets are falling?
If one looks at the historical movements of the Stock Market and Gold one realizes that in fact there is little truth in this old adage, and I believe that we are in for a tumble in both markets.
That is what I believe the Cycles are saying!