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Gold Nears 13-1/2 Month Cycle LowMcClellan Financial Publications, Inc We are very close to the cycle low of gold’s dominant 13-1/2 month cycle. Actual price lows typically arrive within plus or minus a month of the ideal cycle low date, and so we are already within that time window right now. So an upturn appearing at any time between now and November could be the launch point for the next up phase, which is when the biggest gains are seen. Or an upturn could be an early fakeout. Aside from the timing of the major cycle lows, analysis of gold’s price behavior in relation to this cycle gives us important information. The cycle just ending saw “right translation” meaning that the price high after the mid-cycle low was higher than the one before that point. That conveys a hugely bullish message for gold prices during the next cycle, once the major cycle low gets put in. Since the big top in 2011, we have only seen “left translation”, which correctly conveyed a bearish message for gold. Now the message is different, and bullish for the price of gold going into 2017. But there is still some work to do on this current cycle, in our view. Sentiment is not right at this point for a major gold price bottom and ensuing price rise. The middle chart is one that we feature almost every Friday in our Daily Edition, and it shows that the big-money (smart-money) commercial traders of gold futures are hugely net short right now. The degree of their net short position is comparable to what we saw in late 2012, right before gold prices began a huge decline (proving the commercials right). It exceeds the spike high reading in early 2015, which led to a 7-week, $125 selloff in gold prices. The commercial traders have been at this high reading for a long time now, waiting for the selloff to come, and it has not come yet. Perhaps the FOMC’s action this week will be the trigger that starts the mini-avalanche. Whatever is the case, this is definitely not the image of how major cycle bottoms are formed, so more work needs to be done. If gold prices are going to make a major bottom and trend higher into 2017, then that has interesting implications for the federal deficit. The bottom chart shows that over really long-term periods, gold prices are very well correlated to the reported federal deficit. [note that this is usually a lot different from the actual change in total debt, and does not factor other liabilities.] So if you want gold prices to go up, then like it or not, you want a bigger federal deficit. Or, saying it another way, if you want a balanced budget, you therefore also want lower gold prices. The $20 trillion federal debt is barely an issue in this election year, so the risk of Congress “fixing” that seems pretty low. That should allow gold to rise in 2017, and allow the tab passed to our grandchildren also to rise. Bottom Line: Gold is very close in time to an important cycle low due next month, but still has more downward work to do for setting up the right conditions for that major cycle low. NOTE from 321gold.com. I find the McClellan Market Report and the Daily Edition two of the most valuable tools an investor can use to “feel” the market. I highly suggest all serious investors sign up for the free 14-day trial and you can see for yourself. ### Tom McClellan Copyright ©1996-2016, McClellan Financial Publications. All Rights Reserved.
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