The Dow Report: Gold, Poised to Rally?
By Tim W Wood CPA, June 10, 2005
Yes, gold is setting up for a rally of at least intermediate degree. This rally will be a very very important test and a lot is on the line as it relates to gold's future. This rally will tell us without a doubt if gold is still in a secular bull market or if it has turned the corner and is now operating in a secular bear market.
Before moving on here I want to explain that cycles in the market is really nothing more than a method of looking at the various trends of various degrees within a given market. We have long, intermediate and short-term cycles that are used to quantify the price movements of each of these corresponding trends. All three of these price trends are constantly at play as they ebb and flow with and sometimes against one another. For example, the longer term trend may be trending hard in a given direction, but then when the intermediate term cycle turns, it will create a secondary price movement that is counter to the primary trend as defined by the longer term cycle. It is through cycle analysis that we are able to separate these different time horizons so that we can analyze the interrelationship of the different trends.
As everyone knows, gold made a major bottom in 2001. This is where the most recent secular bull gold market was born. From a cyclical perspective, this was a 9-year cycle low. I call it a 9-year cycle because nestled within this longer-term cycle or trend are 9 intermediate term cycles that average approximately one year in duration. These intermediate term cycles ebb and flow within the longer-term 9-year cycle. When this intermediate term cycle is moving up in conjunction with the advancing 9-year cycle it produces very powerful rallies. Then when this intermediate term cycle turns down against the 9-year cycle, it creates a counter trend downward move. This downside movement serves to correct the previous advance and then the market moves on. Of course, the opposite is true when the 9-year cycle is moving down. I have marked the 9-year and intermediate term cycle lows on the monthly gold chart below.
These intermediate term lows are marked with an "S" and the 9-year lows are marked with a "9."
Up until 2004, the 9-year cycle advance had never had more than 4 intermediate term cycle advances into the longer-term 9-year cycle top. The advance out of the April 2003 low was the 4th intermediate term cycle advance within the longer-term 9-year cycle. Therefore, gold was expected to top with that intermediate term advance in late 2003. But, this advance into the intermediate term cycle continued pushing higher into early 2004 and then dropped hard into the April 2004 low. This concluded the 4th intermediate term advance within the larger 9-year cycle. Since there had never been a 9-year cycle that had advanced into a 5th intermediate term cycle, odds suggested that gold had then topped.
But, there is always a first time for everything, and last year was the first time in history for gold to advance for 5 consecutive intermediate term cycles. I believe that this was as a direct result of Greenie's liquidity pump. So yes, obviously gold was influenced by this re-inflation effort, but the ebb and flow of the intermediate term cycle still occurred. In the process, gold was pushed up into a never before seen 5 consecutively higher intermediate term advance within the context of the larger advancing 9-year cycle. Thus far, this unprecedented 5th intermediate term advance topped out in December 2004 at 458.70. From that top gold has been moving down as this intermediate term cycle has been moving down.
Now this brings us up to the present. I believe there is a very good possibility that gold is now advancing upward in a new intermediate term cycle. If not, it’s close and that advance should begin after one more push down into that low. Either way, this will be the 6th such advance since the 2001 9-year cycle low. Could it be that 2005 will mark the first time to ever see 6 consecutively higher intermediate term advances? Or, will 2005 serve to confirm that the 9-year cycle top has been made? I can’tstress enough how important the advance out of this intermediate term low is for the future of gold as it relates to the remainder of the current 9-year cycle. This advance is the first advance of this degree since the December top. Therefore, gold is about to be given a green light to move higher. In order for the 9-year cycle to remain bullish, gold MUST exceed the December 2004 high at 458.70. Should this intermediate term cycle top out prior to exceeding the December 2004 high, then we will have solid cyclical evidence that the December high marked the 9-year cycle top and that gold is now on the down hill side of that cycle. Should this occur, lower prices will then be confirmed.
Nestled within the intermediate term trend or cycle are a couple of even shorter-term trends or cycles of importance. These shorter-term cycles along with the Cycle Turn and Trend Indicators will be key to monitor as this advance gets underway. These shorter term cycles and indicators will provide us with the confirmation or non-confirmation needed as the advance unfolds.
If you would like more detailed and up-to-date information on these developments as they unfold, then Cycles News & Views is your source. I report on gold in the monthly newsletter as well as on my web-based comments during the week.
Over the last couple of weeks I have mentioned that I have greatly expanded my newsletter service to include not only the monthly newsletter, but also web based comments during the week. I also provide charts on the stock market, the dollar, bonds, gold, silver, oil, the HUI and others that include my proprietary Cycle Turn Indicator and Trend Indicators. If you are interested in a service that is a detailed technical based newsletter with a focus on the Dow theory, cycles analysis and the works of master technician George Lindsay, along with web based comments and these indicators, please visit www.cyclesman.com for details and Contact Information.
I incorporate the use of the Dow theory, Cycle theory, the work of George Lindsay and other master technicians of the past in my market analysis, which is published in my newsletter, Cycles News & Views. These theories are applied to the current markets on an ongoing basis covering the stock market, gold, bonds and the dollar. For more information, visit my website at www.cyclesman.com or call 251-955-2327.
Tim W. Wood
© 2005 Tim Wood
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