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Gold Market Update - Feb 2015

Posted by on in The Time Factor
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The recent rally in gold prices this year has been quite strong.  I have noticed a number of the Gold Bugs starting to come out of the wood work again - and in force.

 
The following charts however will hopefully put this gold rally into a bit of perspective - until the price tells me otherwise, the main trend in gold still remains down.
 
Chart 1 below is a weekly gold price chart, showing that  price has been trending nicely within a downward trend channel since 2013.  For my opinion on the gold market to change, I would want to see this trend channel broken cleanly on the upside.  These are the first bands for you to keep an eye on. 
 Gold Market Update - Feb 2015 c.1
 

Chart 2 is a bit noisy as I have tried to pack in a number of the trading techniques I describe in my course all into one chart.  So let's go through them one by one.

The first thing to notice is the repeating daily time counts of approximately 193-196 days.  We just finished another one at the recent high of this latest rally on 22 Jan.  I dsicuss the significant of repeating time counts in section four of my course. 

Next, I have labelled some 73-76 day time counts.  The significance of these time counts is that the rallies in gold haven't yet been greater than this in time.  The latest rally to 22 Jan completed another 76 day cycle.  For gold to change its trend, we want to see rallies lasting longer than 76 days.

The third point to watch are the 180 day and 93 day time counts I have labelled (marked with the turquoise coloured circles).  These have all occurred on trading to Time dates.  The two relevant chapters to refer to in Trading with the Time Factor are the ones where I explain 'trading to Time' and 'Counting Time'.  The relevance is taht the 90 and 180 day time counts are the highest probability dates for changes in trend.  This has been the case for the last 100 years, and the market has just proven it to be the case again. 

The fourth key point is to watch the Fibonaccie levels I have displayed in the below chart.  We describe how to use these Fibonacci levels in one of the earlier lessons in Trading with the Time Factor.  In that course, I describe that Fibonacci levels should be watched for levels to act as price support and resistance, but also as a gauge of strength in the market.  In particular, when prices retrace greater than 50%, but especially more than 61.8%, it is a good sign that the trend may be changing.  The greater the range and time used, the more significant are the leels.  In this case, these Fibonacci levels are over a medium term time frame, so they are releavnt to determine the strength of the market from a medium term perspective.  (I will explain the use of long term and short term Fibonacci levels a little later). 

The key take-away from all of this, is that the current 22 Jan top in gold is a critical time and price point.  I am not surprised that prices have retreated off this high.  Equally however, this price now needs to be watched on the upside.  If gold can manufacture a move through this point, it could very well be the start of the major change in trend all the Gold Bugs have been praying for. 

 

Gold Market Update - Feb 2015 c.2

 
The final thing to keep an eye out for in the chart above are the magnitude of the price moves on each of the counter trend rallies on the way up.  I have labelled three price moves.  $242.  $205.  $174.  In an early chapter in Trading with the Time Factor, I describe how we watch these counter trend rallies to determine when time and/or price is overbalancing.  The fact that each of these counter trend rallies have been smaller than the previous one, does not inspire me with confidence that the gold bear market can be declared over.  Ideally, we want to see the counter trend rally exceed $205 and $242 in price.  This will be the first indicator that the longer term trend is changing. 
The next chart takes a short term perspective of the gold market.  I have labelled the key short term Fibonacci levels to watch for the moment.  As these levels are run off a short term time frame, they are more relevant to help you determine the short term trend.  The key level to look out for is the $1219 level (at 50%).  A fall back through these levels would indicate to me that the trend is resuming lower.
On the flip side, if the current price action can hold above this level and break through the $1306 level (cleanly) I would begin to change my tune on the gold market. 
I have also labelled the key trading to Time dates to watch.  Notice the major turns around the 6-9th of each month.  In particular 8 Aug and 7 Nov.  The next major time count is therefore Friday 6th Feb or Monday 9th Feb.  This would be 180 and 90 days from the Aug and Nov turning points.  It becomes the next critical date to watch.  At this stage, I cannot tell whether it will be a high or a low.
 
Gold Market Update - Feb 2015 c.3
 
The last chart to look at gives a long term view of the gold market.  I have labelled in the key Fibonacci levels to watch out for here.  In particular, note the $1385 level which is the first major Fib retracement, and in line with a signficant previous high.  This price is likely to act as strong future resistance if gold prices can move back up.  A break through of this level, and I would then be strong on gold moving back into a longer term bull market.
 
Gold Market Update - Feb 2015 c.4
 
Conclusion
For now, the long term trend in gold remains down, so going long gold or gold stocks must be traded carefully as you are going against the tide.  Having said that, for the first time in almost four years, I am on the look out for activity in price that may be suggestive of a major change in trend.
If gold can penetrate the $1306 level on the high side, then we cdan revisit the analysis and start thinking about a shift in sentiment.  Until then, I would be using this latest rally to lighten exposure to the gold sector, or take some hedging protection on your gold portfolio.
 
Until next time.

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