Eight-Year Positive Cycle for Gold Starting Now

McClellan Financial says an eight-year cycle for gold is about to start and the next five years will likely be good ones

Via email from Tom McClellan, please consider Gold's 8-Year Cycle.

We are now entering the upward phase of gold’s 8-year cycle, and that should bring some fun gains. And this comes at a time when gold has not been getting much of investors’ attention. If gold stays flat for a year, and Bitcoin twinkles to get all of the attention, speculators eventually drift away from gold. That sets up a great opportunity for gold to start getting more attention, and more money thrown its way.

As with most market cycles, gold’s 8-year cycle is measured bottom-to-bottom. But there is more to it than just that 8-year period between major bottoms. It typically sees a 3-year upward phase, which is where most of the big gains are seen. Then the 5-year downward phase actually has a 3-wave process of going down.

This has been evident since shortly after gold started trading freely in 1975. The cycle was probably lurking out in the wild, but it was just not evident with the Treasury department fixing gold prices prior to the 1970s. The 3-up, 5-down pattern saw one anomaly in the 2000s, when prices were mostly up all the time during that cycle. But if you look hard enough, you can see the inflection points of the 3-wave down move within that upward trend.

Now that we are in the 2010s, the pattern appears to have returned to its normal 3-year up, 5-year down phase, and reset for the next 3-year up phase. So why has gold not started screaming higher already?

My answer is that there is another independent cycle also at work that has kept gold price down in late 2017, and that is the 13-1/2 month cycle.

This cycle is also a bit unusual, in that it usually contains a mid-cycle low about halfway between major cycle lows. And as I discussed back in September, it is a bullish message to see “right translation” in the last cycle.

That term means that the price high after the mid-cycle low is higher than the one before it. Seeing right translation means that prices should not go down to exceed the prior major cycle low, and that they should do well in at least the first part of the next cycle, which is starting right about now. We saw “left translation” in the 13-1/2 month cycle from 2011 to 2014, as gold prices were in a protracted downtrend during the 8-year cycle’s descending phase.

As we head into early 2018, we have both the 8-year cycle and the 13-1/2 month cycle in their ascending phases. That means both horses are pulling in the same direction, and it should mean good things for gold prices especially in the first half of the year.

Tom McClellan

Fundamentals and Cycles in Alignment

McClellan discussed Gold's 13- 1/2 Month Cycle on September 7. Inquiring minds may wish to give it a look.

Some people believe in cycles and others don't. Here are some other points to consider.

  1. Fundamentally, sentiment in gold is washed out. Few want it, even as a hedge even though gold had its best year this year since 2010.
  2. The media is touting Bitcoin as "the new gold" despite the fact the comparison is mostly ludicrous.
  3. Investors are chasing FAANG (Facebook, Apple, Amazon, Netflix, and Google as if valuations no longer matter). A market realignment is going to happen.
  4. Every week we see reports on why stock are cheap compared to bonds, and analogy that makes a much sense as Bitcoin is cheap compared to moon rocks.
  5. The US tax cuts will add a minimum of $1 trillion to national debt in the next 10 years. I expect triple that.
  6. If US interest rates do not rise as most expect, faith in central banks will again come into play.
  7. If there is a crisis in the Eurozone (Italy, Germany, or Spain are likely places), faith in the ECB will come into question.
  8. Already we are seeing yields rise in Italy vs. Germany.
  9. Despite analysis that suggests the US economy is strengthening, yields on the long end are not going up. The yield curve is flattening.
  10. The US treasury market does not believe in economic strength, and neither do I.

Faith in Central Banks

Points five through 10 pertain to faith in central banks. This is how I view things.

I did not post that on a log chart, but events line up as per McClellan's 8-year cycle.

ECB president Mario Draghi nearly timed the top of the gold market with his now famous "I will do whatever it takes to save the euro, and believe me, it will be enough".

What did he do at the time? Actually nothing. His speech was all it took. Later he added QE that is doomed to fail.

Fundamentally, we are lined up on numerous fronts for faith in central banks to come increasingly under pressure.

It will not take much of anything to trigger loss in faith in central banks. The equity bubble bursting is a likely candidate. A currency crisis is another.

For those who believe in cycles, the timing is perfect for a strong runup in gold.

How Much Gold?

With so much going for it, inquiring minds may wish to consider How Much Gold Should the Common Man Own?

Mike "Mish" Shedlock

Comments
No. 1-15
enjim
enjim

I think we can agree that Tom McClellan is an accomplished technician but he appears to have his ideas about cyclical behavior that are contrary to classical cyclical analysts. Second only to Martin Armstrong, the late Walter Bressert was probably the most accomplished "cycle analyst" of the 20th century. He coined the terms right- and left-translation as regards price action within a cycle and his definition most definitely is not that which McClellan uses. Bressert would have said, "Right translation is the tendency of prices to peak in the latter part of the cycle during bull markets and left translation is the tendency of prices to peak in the front half of the cycle during bear markets."

Carl_R
Carl_R

Bonkers, the sign I used to know when the top was in was when there lots of ads for gold on the radio, and lots of shops popping up that buy and sell gold. The ads are mostly gone, but the shops are still around. There are still a lot of gold bugs, so I can't use attitudes to call a bottom. I really don't know where gold is going. I do know that there will be another up wave at some point, but I rather guess it's a long cycle, once a generation. That gave us peaks in 1982 and 2011. I see the next peak in 2036-40, which also, not coincidentally is about when I see the end of the US on the horizon, to be followed by some sort of dictatorship, most likely a populist/socialist one.

Edard
Edard

Thank you Mish for publishing the story. If only it was as easy as following a cycle. Armstrong has proven that his market analysis has been on the money as others have been calling for an historical correction of 10% in the market. The market price has risen for over 8 yrs from 2009 low 666.6. Heading to the 8.6 cycle that Armstrong found relevant. Happy New Year to all and may our brains still can differentiate the right path tomorrow for yesterday is lost.

Six000mileyear
Six000mileyear

From my studies of Elliot Waves and Hurst cycles, markets are made up of over 10 degrees of trend, or cycles, at one time. Amplitudes and periods of cycles vary over time. So to forecast any market with only one cycle is an incomplete analysis. E-waves analysis is showing a large degree textbook triangle pattern that is nearly complete. Triangles are consolidation patterns. The direction into the triangle is the direction out of the triangle. With gold, the trend was down going into the triangle, so once the triangle completes in the first half of 2018 (maybe 18Q1) there will be a second strong sell-off lasting at least a year.

Bonkers_McLeish
Bonkers_McLeish

... and central bank actions in general. More monetary pumping just round the corner and gold knows it. Anyhoo, each to his own.

Stories