Gold is rallying very hard here off the late 2015 lows along with the gold miners. Is this the start of a new gold bull and a persistent rise as we saw from the 2000/2001 lows? Good question.
While I had anticipated a rally to start soon in precious metals, I am surprised at its nature. I have been expecting a long term bull market for gold and silver to potentially start in this time frame (2016 and beyond). The worry I have is that we could be seeing a very strong rally into a 4 year cycle peak. Gold is best analysed on a peak to peak basis. The gold miners on the other hand probably work with both trough and peak analysis. We’ll stick with gold here today.
The peak gold cycles are very consistent when looking at 4 and 8 year cycles. The odd thing that occurred into the 2011 high was that we had a short 4 year cycle at 42 months. Prior cycles had been 48, 50, and 47 months for the 4 year cycle. So nominally gold should have peaked at year end 2011 or at the start of 2012. Because this 2011 top was likely a secular high, we may have seen a failed cycle peak (ie. late 2011) at that point in time. This idea of a failed cycle peak could be much like what is discussed in Elliott Wave theory when a final expected wave, in this case up, does not come to pass. This has important implications for gold and that it may not have finished its bear market.
So what is my concern with this current rally? The rise is so sharp that there is risk gold is making a 4 year cycle peak some time soon. If we take 48 months forward from the end of 2011, we arrive to this time frame. This rally could persist to late March and possibly reach as high as $1350 – 1400. If this scenario is plausible, and once this rally concludes, gold is probably best sold until things become clearer.
To be honest, this was not what I was expecting this year. I am long gold but looking for exits on this trade.