So Why Has Gold Been So Week?
Gold is a cyclical and seasonal market. It tends to be soft in the Spring and early Summer months until demand picks up as manufacturers begin buying for the holidays. Our leading (medium-term) indicator on Chart 2B captures these moves well.
Gold's intermediate moves are labeled as A-D on the chart. The As and Cs coincide with gold rises while the Bs and Ds coincide with the declines. As you can see, gold has been in an intermediate D decline since January. The rise in March, in hindsight, was part of a topping process in the C peak before gold fell (see Chart 2A). The D decline was then fully expressed as the indicator fell to the low levels that coincide with prior D decline lows. The fall was steep but gold held near the 65-week moving average and it's now bouncing up from this important support. The prior D decline a year ago was similar.
D declines are usually the sharpest intermediate declines in gold's cycle as they wring out the excesses of the previous C rise. In a bull market, the D decline lows will be higher than the prior B low, which is exactly what happened.
This D decline lasted on the longer side of a normal D decline but since the dollar's rebound rise is now over, these markets are now in synch to resume their major trends. This means gold's A rise is now getting started as long as gold stays above $385.
A rises tend to be consolidation rises. In other words, they generally rise to test the highs but they don't usually rise to new highs. So if gold closes and stays above $400, it could rise to $430. And if this is all we get for now, the bull market will still be very solid. The A rise could last until July. If gold breaks clearly above $430 during this rise, then it would be super strong because gold would be entering a stronger phase of the bull market.
More important, it's good to know the worst is over for this year assuming the bull market stays intact. And it will as long as gold stays above its 65-week moving average at $377. This means if we don't see a new high until the Fall, gold will still be fine and on track.
