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Gold reversed this morning after making fresh Daily Cycle highs before moving over $20 to the session lows. Most of the move can be attributed to the dollar’s fairly powerful rally as it confirmed a new Daily Cycle of its own. But within the context of this powerful gold Daily Cycle, this remains (to date) just normal gyrations within a sustained uptrend. After all, we’ve seen 13 out of 15 winning sessions and a Cycle rally of $100 from the last Cycle Low. To think anything more of it at this point is to be “over analyzing” the daily chart.
But there is an element of concern now and a reason to be guarded. The Cycle has entered into the early stages for a Daily Cycle Top and therefore a move lower from this point could well signal that the Cycle has topped. But I reiterate, it is a little early for a 2nd Daily Cycle high and from a pricing standpoint, I would expect more upside. This is why I believe gold has more room left to rally higher.
But the dilemma is the dollar, it rallied hard today to confirm its 4th Daily Cycle. A few more days like today (out of the dollar) will likely pressure gold into an early DCL. I don’t expect too much from the dollar, but some “dead-cat bounce” strength here could put the brakes on this Cycle. Soon enough, the dollar will top (which should be very soon), and it should be a substantial move lower. That will provide gold with a significant push higher that is more likely to correspond with gold’s coming 3rd Daily Cycle, not the current 2nd DC.
Unfortunately because of its recent history, from an analysis standpoint we’re forced to question gold’s motives. We’re at the point in the Cycle where it could support moving in either direction. Today could well have marked a DC high with a shallow DCL to come. Or we could see still see our expected continuation higher (as drawn in the chart below) to test the $1,370-$1,400 area. Uncertainty and alternative scenarios in the trading world are just a common and normal development. The key is to be aware of the alternatives and to plan both your position sizing and reaction to each scenario accordingly.
For now, let’s continue to support the notion that a further move higher is coming. But at the same time, let’s acknowledge that a close below $1,322 would be Daily Swing High, a trend-line break, and a 10dma break. The next couple of days will be telling, because gold hitting that trifecta of events would certainly confirm a Daily Cycle headed towards the next Cycle Low.