Gold has been pushing up to higher closing highs, which is getting the gold bugs all excited. But we are now late in the 13-1/2 month cycle that is dominant in gold prices, and so we should expect a drop into the major cycle low due at the end of 2017.
But there is a lot more to the 13-1/2 month cycle than just when to expect the major lows. For starters, there is a mid-cycle low that usually arrives around the mid-point of the whole cycle. The mid-cycle low is usually not as punctual as the major cycle low, but it is still important for figuring out the message that gold prices have to convey.
Just noting the existence of a mid-cycle low is not all there is. How prices behave around that mid-cycle low conveys information about what lies ahead. If the high for the cycle arrives before that mid-cycle low, that is known as “left translation”, and it carries a bearish message about what lies ahead. It says that the price bottom at the major cycle low should take out the last cycle’s bottom.
“Right translation” occurs when a higher high occurs after the mid-cycle low, and this says that gold prices are in a more bullish mode. The prior cycle low should not get taken out at the next cycle low. That is the condition we see right now, with gold prices pushing up to a higher high.
So now that we have this message of a more bullish condition in gold, we have some assurance that the Dec. 22, 2016 low of 1130.70 for near-month gold futures should not get taken out. That still leaves a big distance that gold could drop between now and the end of 2017 without violating this “rule”. But the general point is that strength late in the cycle breeds strength again during the next cycle. So once we get past the major cycle low at the end of 2017, we should be able to look forward to larger gains again for gold prices. Until then, though, gold has some late-cycle corrective work to do, if only to get the whole world convinced that gold can never go up ever again. Once that work is done, the setup will be complete for the next uptrend.
The McClellan Market Report