Gold: The Bigger Picture

When Gold was trading around $5,000, I was calling for a Wave 4 correction toward $3,600. A lot of people told me I was crazy. Their argument was that charts don't take Central Bank buying, government debt or currency debasement into account.

The low so far is $3,870, and I'm still watching for one more potential dip into the $3,600 to $3,700 zone.

So let's talk about why charts matter, and how I can be cautious short term and bullish long term at the same time.

Charts already include the fundamentals

Every bullish catalyst people point to is already in the price. So are the headwinds, like real rates and the opportunity cost of holding a metal that pays no yield. Price is where all of it meets.

What charts really show is trading psychology: greed, fear, euphoria, anxiety and doubt. Elliott Wave is the study of that crowd psychology as it repeats.

Understanding cycles

Dow Theory says a Primary trend moves through 3 phases:

Accumulation

Public Participation

Excess (or Distribution)

Elliott Wave swaps those labels for numbers. Wave 1 is Accumulation, Wave 3 is Public Participation and Wave 5 is the Excess phase.

Supercycles play out over centuries. Cycles play out over decades.

Gold's Supercycles so far

Supercycle 1 runs from 1792, when Gold's price was fixed at $19.39/oz, to the 1980 peak at $875/oz. You can see all 3 phases on the first chart: a long Accumulation phase through the fixed price era, Public Participation after Nixon ended the gold backed currency in 1971, and the Excess phase into the 1980 inflation shock.

Supercycle 2 was a 19 year correction that took Gold down 71% to $252 in 1999.

Supercycle 3 started at that 1999 low and should unfold in 5 Cycle waves:

Cycle 1 topped in 2011

Cycle 2 bottomed in late 2015

We are now in a Wave 4 correction inside Cycle 3

The 2008 comparison

Put this Wave 4 next to the October 2008 Wave 4 low on the second chart and the numbers are very close:

Retracement: both pulled back into the 0.236 to 0.382 zone of the prior advance

Time: a similar length of correction

Monthly RSI: 44.54 at the 2008 low, low 50s now and still falling

What's missing is the catalyst. In late 2008 the GFC pushed the global economy into recession. The Fed cut aggressively and had rates at 0 to 0.25% by December, central banks around the world followed, and Quantitative Easing began. That debased fiat currency and gave Gold a major tailwind.

Today the market expects the Fed to hike in December. That's a very different backdrop.

Where that leaves me

I remain bullish on Gold and expect significant upside in the years ahead. Short term, though, the macro environment is still hostile to metals, and I'm respecting that.

Mastering the Markets Pty Ltd (CAR 001309433) is a Corporate Authorised Representative of ShareX Pty Ltd (AFSL 519872). General education only, not personal financial advice. Consider your own circumstances and seek independent advice before making financial decisions.

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