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In September 2011, our cycle analysis predicted the formation of a long-term top in the gold market. Following the development of a consolidation formation from late 2011 until early 2013, prices moved below congestion support in the 1,550 area. As expected, the breakdown was followed by a severe decline of 24 percent from April to June.
The secular bull market that began in 2001 is still in progress and we have been monitoring market behavior for the potential formation of the latest cyclical bottom during the last five months. In September, our computer models outlined a bullish scenario that would suggest a cyclical low is forming. That bullish scenario required the formation of the latest intermediate-term cycle low (ITCL) well above the previous low in July. Last week, we identified the potential formation of the latest ITCL during the week ending October 11. Although a cycle low signal was not generated, gold has continued higher this week, further supporting the long-term bottoming scenario.
As always, it is important to remember that a long-term bottom is a process, not an event. Cyclical lows are confirmed in stages as specific short-term and intermediate-term objectives are achieved. The formation of the latest ITCL in early October could be confirmed as soon as tomorrow, so it will be imperative to monitor gold market behavior closely for this potentially important intermediate-term signal.
Disclosure: I am long SGOL.