by Gary Christenson, Deviant Investor:
Gold bottomed in December 2015 at a major cycle low.
Or did it?
Financial Sense published in May an article by Tom McClellan, an excellent analyst: “Major Cycle Low Upcoming in Gold.” The low may be coming as this article suggests, or perhaps it has already occurred.
Cycle analysis can be useful but, as in chaos theory, a small change in initial conditions can create a substantially different outcome.
Example: In the above article Tom McClellan uses an 8 year cycle and a 13.5 month cycle to conclude that “There is a major cycle low looming for gold prices. Ideally, it should arrive as a price low in late 2016.”
ALTERNATE ANALYSIS: His proposed 8 year cycle could instead be a cycle of 94 months, or 7.83 years, and the 13.5 month cycle could be 63 weeks, or 14.5 months. These tiny changes indicate the significant cycle low probably occurred last December. Examine the following log scale chart of MONTHLY gold prices back to the 1976 low.
Note that a 94 month cycle (7.83 years) points to all six major lows since late 1977 – see the green ovals. The cycle lows do not precisely match price lows, of course, but in 5 of the 6 cases they are close, and the sixth case is split between price lows in 1999 and 2001. The monthly RSI at the bottom also indicates all significant lows.
Examine the following log scale chart of WEEKLY gold prices back to the 2007 low.
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