Gold Just Needs More Time

By: Bob Loukas | Mon, Feb 23, 2015
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The Gold market appears to be in reverse gear at present. It's at fresh 6 week lows with a 2nd Daily Cycle that continues to wind lower, and is showing nothing that's at all positive. Gold is trading very lethargically, and is uninteresting from most perspectives.

Assets move higher or lower in direct relation to the sentiment of traders and investors. And sentiment swings like a pendulum, from bullish to bearish and then back again. Sentiment is the primary driver of demand, with greater buyer engagement - both in numbers and enthusiasm - required to drive prices higher. Unfortunately for Gold bulls, it appears that the sentiment pendulum has already peaked, and is heading back toward bearish lows. We see this clearly in the COT reports, with traders continuing to shift from net Long to net Short positions. The report's actual survey data confirms that sentiment for the current Investor Cycle has topped, and is now in decline.

Ultimately, price action rules. In this case, with the current Daily Cycle having declined for 22 days (and counting), Gold's price shows clear confirmation of an Investor Cycle decline. Bullish Cycles generally contain declines of no more than 10 days.

Headlines don't always drive asset prices, but if Gold were inclined to move higher, last week's sound bites around both a potential Greek exit and a breakdown of the Ukraine ceasefire offered plenty of fuel for it. Instead, Gold continued moving lower without a hint of strength. Given the geopolitical backdrop, Gold's lack of upside movement speaks volumes about its underlying demand.

$GOLD Gold - Spot Price (EOD) CME: Gold Daily Cycle
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On the Investor Cycle timeframe, the current 4 week decline also creates problems for bulls. There is no way to sugar coat it: the action has been downright bearish. In my opinion the evidence clearly shows that the current Investor Cycle has topped and is on the way to a Investor Cycle Low.

From a review of past Cycles, especially those of the past 4 years, it's clear that the week 11 high is almost certainly the top of the current Investor Cycle. Having price fall through the weekly trend-line is one issue, but the firm close below the 10 week moving average creates even more of a concern. In addition, an Investor Cycle in an uptrend rarely sees price spend an entire week below the 10 wma, but that's what happened to Gold this week.

$GOLD Gold - Spot Price (EOD) CME
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With Gold now 15 weeks into the current Investor Cycle and with a 10 wma that has turned lower, it's clear that the current Investor Cycle is in decline and on its way to a trough. At this point, the evidence is conclusive, so only an outlying Cycle development would shift our outlook. Traders need to be aware that an oversold Daily Cycle rally should come this week, but that is an opportunity to sell on strength and capture the larger move lower over the coming months.

 


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Bob Loukas

Author: Bob Loukas

Bob Loukas
The Financial Tap

Bob Loukas is the founder of "The Financial Tap", a membership site dedicated to helping traders and investors navigate the markets while increasing their expertise and understanding. Bob has over 20 years of experience in trading the markets, is a life-long student of economics, and has an abiding passion for the financial markets. Much of his investment philosophy is top-down in nature, beginning with a global and macro outlook which is used to create a framework that drives his intermediate investments.

Bob is a leading expert in Market Cycles. His love of Cycles grew after his introduction to the work of Walter Bressert, one of the pioneers in the field. Cycles were a natural fit with Bob's passion for top-down analysis. As Cycles are intertwined on multiple time frames, understanding the global outlook greatly helps him to identify the long dated Secular Cycles. From that point Bob is better able to identify the shorter Cycles and to build a cohesive investment strategy. Bob's Cycle Analyzer, a software based analytical and intelligence system, is used to predict the future movements of the major financial markets.

Originally from Sydney, Australia, he is now settled and has been working in New York City for the past 13 years. His background and education is in Computer Sciences and he holds a bachelor's degree from Monash University in Melbourne Australia. He has extensive experience in the Financial Software area and has served as a senior executive at various Fortune 50 management teams developing financial trading and reporting software.

Happily married with two children, family is a big part of his everyday life. Other passions including golf and long distance running. He plans to complete the 2012 New York City marathon.

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