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Gold: How Long-Term Trading Cycles May Affect Future Prices

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The bullish situation in gold remains in place and RSI levels suggest an oversold situation similar to the major bottoms of 2011 and 2012.

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This week, price moves in the gold market could certainly give investors the creeps. The yellow metal opened at around $1,668 on Monday, closed $1,634 on Thursday, and is currently (at the moment of writing these words) at $1,606.

My firm has stressed many times that in order to make long-term investment decision, one should put more weight on long-term charts rather than focusing on short-term noise. Today we will focus on the long-term gold chart; it gives the most insight into what may happen in the long run. Let us jump straight into it (charts courtesy of http://stockcharts.com)


Click to enlarge

There are two things to focus on in this chart. The first is that the RSI levels have declined and are now at a level equal to those seen at the 2011 and 2012 bottoms. It seems very likely that a major bottom is either in or at hand now.

The second important point is that we have discovered a long-term cycle when analyzing gold market consolidations and how they evolve to rally and top. We generally project the price path that will be seen next -- however, this time we thought of looking at when a top could be seen and inferring how gold might get there.

Note that the second stage of the gold bull market began in 2006 (breakout in terms of euro, acceleration in terms of the US dollar). From the major bottom in that year and after, we see strong relationships and that every two years or so, we have a major top preceded by a sharp rally. The coming top (long-term cyclical turning point) is suggested in late May, so a sharp rally is expected very soon -- that is, prior to the May top. Note that before this rally there may still be some short-term turmoil on the market – since we are talking about long-term signals, it is very hard to give a very precise starting point for a rally. This is yet another confirmation of our bullish theory for the coming weeks and months and supports staying in the market at this time.

The second gold chart for today is also long-term.



In this week's chart of gold from the non-USD perspective, we still see a bullish picture. Prices have consolidated after breaking out, and while the situation looks a bit discouraging (as not much happened in the past few months), it is still overall bullish in our view.

Summing up, the situation for the yellow metal remains bullish at this time. The analysis of this week's long-term chart uncovered some bullish signals based on a study of trading patterns seen since 2006. As always, implications gleaned from long-term charts carry more weight than those from shorter time periods and are the most important factors to be considered from this week's gold section. The bullish situation remains in place and RSI levels suggest an oversold situation similar to the major bottoms of 2011 and 2012. Although the short-term picture looks grim, the long-term one is really encouraging, even though an additional short-term decline may be seen before the big rally.

Thank you for reading. Have a great and profitable week!

For the full version of this essay and more, visit Sunshine Profits' website.

Twitter: @SunshineProfits
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No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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