I looked at the long term picture on the SPY earlier in the week. Today I will look at gold and GLD.
The chart below is one I originally used in my FSN article "Gold a cycle recipe for disaster" last year.
It shows gold going back 30 plus years, I could not updated it because the chart service I used to make it went out of business last week. It still serves our purpose as it is there to show that the big cycles and trend are still intact. The starred low that occurred in late 2008 is an eight year cycle low, there are several in the chart. I believe the low shown as the red cycle bar at the bottom turns from red to blue, is a large twenty four year low which is going hard up at this time as well. The one thing to notice is that the one year lows (brown dots) must not be broken the following year or the sum of all trends large than one year has turned down. This should not happen at this time in the new eight year cycle. So the one year low from last year has to hold this year to keep the bull move alive. There is a question as to where it occurred in 2009.
Five Year Pattern
Below is a five year chart in which I have marked the end of March time where we find ourselves now. I believe the low we made in October of last year is an important low, where a longer term eight year cycle bottomed. The next thing we look for is a one year low sometime in 2009, here it gets a little fuzzy. Was it the low we made in July or did it come in and hardly register in October? If you look you will notice that it often makes a high in late April and the low comes in July, sometimes as late as October. That is the trouble with cycles, they are not tradable as a stand alone method.
I have placed two brown dots at levels where the one year cycle may have occurred, not exactly rocket science but we know one of these levels must hold.
The Main Point
What I want to point out in this article is that in only one year out of the five did we go much below the March low as we fished out sideways into July. In other words we tend to compress into the summer doldrums. I think we will do the same thing this year because it is an election year and sooner or later Obama will realize he is getting sandbagged by Bernanke and Co., meaning they are not getting the money into circulation. Eventually the money taps will open again, possibly too late for a good showing at the polls. Not too late for a fall rally in the metals however. The knowledge of this dynamic will keep a bid under the metals preventing a 2008 style melt down
My best guess is that we take one more run at 114 which turns back, then the 102 area holds until July, then we get a nice leg up.
Conclusion
If we get a compression in the metals it will be an excellent buying opportunity. The Junior metals companies will benefit even more strongly. I track a few key Juniors which I use to verify the price action I see in the majors and their charts are promising good thing to come. They love a nice summer siesta, so keep a little set aside for them.
Silver will benefit as well (in fact I favor it at this time) from the seasonal compression.
If you have not read it, you might enjoy my Financial Sense article, Gold Crash, in it I suggested gold would make a low around the 102.50 area.
