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Chart In Focus

Gold’s Cycle is in Left Translation

Chart In Focus
April 17, 2014

On the "blood red moon" day of April 15, gold had an impressive downturn which changed the whole picture for gold prices over the next few months. 

Viewing one day's action on its own is a recipe for being misled.  But viewing it in the right context is a great way to draw insights about what the future holds.  And one of the most important contexts I have found for interpreting gold's price action is to put it into its proper place within the 13-1/2 month cycle. 

I have written about this cycle before, along with its unique tie-in to cycles in other data, and it remains an important phenomenon for explaining how gold prices behave, telling us when the important bottoms and tops are due to arrive.  More importantly, it remains an important interpretational tool for gaining an understanding about what is coming next. 

About every 13-1/2 months, there arrives what I like to call a "major cycle low".  Those tend to be the more important cycle bottoms, and the next one is due in July 2014, plus or minus a month.  So between now and around July 2014, we can expect the normal sort of decline that is associated with price behavior leading into a major cycle low. 

But the price action within the rest of the 13-1/2 month cycle also offers us information.  There is nearly always a meaningful mid-cycle low about halfway between the major cycle lows.  The latest iteration of that appears to have been the price low we saw in late December 2013. 

Just as important as the timing of the mid-cycle low is the arrangement of the price highs before and after it.  I like to call this cycle a "bactrian" cycle, after the two-humped camels native to the Asian region of Bactria.  There are typically two important price peaks instead of one in each 13-1/2 month cycle period.  And the arrangement of those peaks gives us information about the future.

If the right-hand peak is higher than the left-hand peak, then that is a configuration known among cycles enthusiasts as "right translation", and it is a bullish message about the future.  It promises us a higher high on the up move after the major cycle low.  That was generally the condition we saw all the way up from the 2001 low to the 2011 high.  It also says that the decline into the major cycle low should not be too severe. 

Seeing the left-hand peak higher than the right-hand peak is called "left translation", and it is a bearish message about the future.  It says that the price ought to be expected to dip below the level seen at the mid-cycle low.  The sad news for gold bugs is that this is the situation we are seeing right now. 

Gold prices peaked around the $1420/oz level back in August 2013.  So the key point I have been watching for in early 2014 was to see if gold could get up above that $1420 level to give us an indication of right translation.  So far, we have not seen that, and lately it is not looking good.

Gold futures prices turned down after peaking on April 14 at $1331/oz, well under the $1420 level, and indicating a left translation condition.  This is the 3rd cycle in a row with left-hand translation, meaning that gold as not yet broken out of its bearish chart configuration.  While there is still a remote possibility of a late blowoff rally ahead of  the major cycle low due in July, that possibility gets more and more remote with each passing day. 

For now, the expectation is for a decline to take out the levels of the December 2013 lows, which were around the $1190/oz level (depending on which contract one looks at).  That's a pretty big decline from here, and not likely to end until the arrival of the major cycle low due in July 2014.

See also this 2005 article about left and right translation.

Tom McClellan
Editor, The McClellan Market Report

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