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Gold at a Major Crossroads


Next week comes a dramatic change in the yellow metal's fortunes.

I think next week will mark a major turning point in the gold market. Depending on whether the dollar continues higher or turns back down we will either see a resumption of the D-Wave decline or this will just turn into a normal run-of-the-mill intermediate degree correction followed by another leg up in this 2 1/2 year C-wave advance.

First, The Pros:

The COT report has now reached a maximum bullish level on the commercial contracts. In the past this has always marked major bottom turning points.

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Sentiment and breadth have reached extreme bearish levels (contrary indicator).

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It's possible that gold has formed a small T-1 continuation pattern (A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected).

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There is a small problem with this interpretation as the second leg of a T-1 pattern is generally slightly smaller than the first leg.

And Now, the Cons:

The current intermediate cycle is too short. Barring a shortened cycle, which does occur rarely, there should be one more leg down into the normal timing band for an intermediate degree cycle bottom (20-25 weeks).

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