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The Long and Winding Gold Bull Cycle Is About to Begin

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Now's the time to consider accumulating selected gold stocks with attractive production profiles and growth metrics.

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The dramatic 2- to 3-day takedown in gold spot pricing action smells and looks like capitulation to me. My firm has been calling this entire 19- to 20-month consolidation period a Primary wave 4 correction pattern, though it's complicated for sure. It has had multiple false rallies and buy and sell signals the entire time. With that said, the pattern is set up for a final fifth wave decline, which we are seeing now at the beginning of April.

Traditionally, gold tends to meander or be weak in April anyway on a seasonal basis. This sets gold up to rally in May into July with another soft patch, followed by a fall rally. However, our technical analysis is predicated on our Elliott Wave analysis, which says this entire 20-month correction is a "Double Three" correction pattern. Essentially its two ABC patterns with an "X" Wave rally in the middle to really confuse everyone.

The X wave took gold to 1800 last fall before dumping all the bulls off and eventually working its way down to the 1540s levels we see today. This last leg down is a 5 wave decline, and you know you're at the bottom of wave 5 when everyone throws in the towel and the gold stocks trade at multi-year lows and relative valuation extremes. We also have insiders buying 7 to 1 over sellers according to Ink Research in the gold stock sector. Stocks are valued at $923 per ounce equivalent even though gold is trading north of $1,500 per ounce still.

We say bring it on and are actively accumulating selected gold stocks with attractive production profiles and growth metrics.

See the Gold Elliott Wave analysis chart below which forewarns of one more leg down. The next rally should be a doozy and have very few people on board. We would simply caution that a drop below $1523 spot pricing could lead to a blast down to the 1440-1460 areas, but its unlikely in our current view.


Twitter: @activetrading

Editor's Note: David Banister is the chief investment strategist and co-founder of ActiveTradingPartners.com, a small-cap portfolio and market advisory service.

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No positions in stocks mentioned.

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