In February, I published a Seeking Alpha article that suggested gold would establish a major low in the May-June time frame. This still looks like a distinct possibility, based upon time cycle analysis and the timing of Federal Reserve interest rate hikes. In this article, I we look at a few charts to find some clues on where gold might be headed.
Time and Fed Cycles
The chart below shows a simple time cycle analysis (the blue half-sine waves). An intersection of a roughly 2- and 3-month time cycle has coincided with a bottom or rally in gold prices. The time cycle intersection is highlighted by the shaded blue vertical box.
Interestingly, four of the five past time cycle rallies have coincided with the Federal Reserve raising interest rates by 0.25%. This is highlighted by the dashed vertical lines. It is possible that this dynamic is a "sell the rumor, buy the news" event. The Fed is indeed expected to raise rates by 0.25% at its June meeting the 12th and 13th.
Source: Viking Analytics
We can see that the last three time cycle rallies were preceded by a sell-off of gold below the 200-day and 400-day moving averages (roughly the 50-week and 100-week moving averages). If the sell-off occurs again, then gold might be an excellent buy in the $1,260-$1,280 range.
If we compare the price action in the summer of 2016 with early 2018, we might see similarities prior to the October 2016 sell-off. The $1,305 price range has been important support and resistance, and gold bulls will want gold to hold here above the 200 day MA.
The volume profile for the past year in gold shows a point of control near $1,280. Not only is the current 200 day MA an important technical level, but if gold falls below this level, it will move back into a lower distribution of prices. We shall see.
I created the concept of OPEX Price Magnets in June 2017, and have seen how the value of gold tends to mean-revert to the place where the gold options market is delta- and gamma-neutral. It is theorized that delta and gamma neutral is the price level where the market makers and dealers optimize their profits on the day of option expiration.
The graph below shows the relationship between the futures price and the Price Magnet since December 2017. An introduction to OPEX Price Magnets can be seen by clicking this link.
I believe that gold is fundamentally under-valued, but even so I am preparing for a low to be made in June some time, perhaps in the $1,260-$1,280 range. At that point, I intend to evaluate which precious metal exposure appears to offer the highest risk-reward at that point. I am always long precious metals in one way or another.
Note: All charts above were taken from Trading View unless otherwise indicated, and all tables were created by Viking Analytics unless otherwise indicated.
Disclaimer: This article was written for information purposes, and is not a recommendation to buy or sell any securities. All my articles are subject to the disclaimer found here.
In my Commodity Conquest service, I write a daily report on the OPEX Price magnets for many key commodities, including natural gas, crude oil, gold and agriculture. I also do in-depth coverage of many commodity firms.
My verifiable trading record from on all completed trades through early May has included a win rate of over 65% with an average return of 2.9% and an average holding period of 11.8 days.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am always long precious metals in one form or another.