Data &
Technology
Research
Reports
Report Solutions
Reports Library
Actionable
Strategies
Free
Resources
Simple Backtest Calculator
Simple Seasonality Calculator
The Kelly Criterion Calculator
Sentiment Geo Map
Public Research Reports
Free Webinar
Pricing
Company
About
Meet Our Team
In the News
Testimonials
Client Success Stories
Contact
Log inLoginSign up
< BACK TO ALL REPORTS

Commodity at the Crossroads - The Gold Edition

Jay Kaeppel
2021-06-16
Gold appears to be moving closer to a critical juncture. While some important indicators remain unfavorable towards the yellow metal, the potential good news is that seasonality, price action, and a little-known ratio are beginning to align favorably.

Everywhere I look, I keep finding headlines about "the coming rally in gold." Meanwhile, many of the things I follow related to gold are just not lining up in the bullish camp (see here and here). That said, gold appears to be nearing a crossroads and setting up for the next big move. 

SEASONALITY

The chart below displays the annual seasonal trend for gold. 

Regarding seasonality:

  • It might not be quite accurate to deem this chart as "bullish," as historically, there has been a lot of "chop" in the month ahead
  • But most importantly, the chart does suggest that the worst may be over for a while
  • Additionally, July, August, and September have demonstrated a bullish bias for gold

ELLIOTT WAVE

Truth be told, I am not a true "Elliott Head." But as a proud graduate of "The School of Whatever Works" (good ‘ole SWW), I do pay attention to Elliott Wave when the counts of different timeframes (daily, weekly, etc.) match up and/or if the wave count appears to line up with seasonal expectations. Because I have never had much success discerning wave counts on my own, I rely upon - for better or worse - the algorithm built into ProfitSource software to generate wave counts. 

  • The chart below displays a bullish Wave 5 possibly developing on the weekly gold chart
  • It is presently projecting higher prices in the months ahead - much like the seasonality chart above
  • The chart below displays the daily Elliott Wave count that is suggesting the possibility of another pullback in the weeks ahead
  • This scenario also fits well with the seasonality chart shown above

The Lumber/Gold Ratio

The chart below displays the Lumber/Gold Ratio since 1975 (black line) and its 200-week exponential moving average (blue line).

The chart below measures the deviation of the lumber/gold ratio from its own 200-week exponential moving average as follows: 

(((Current lumber/gold ratio divided by 200-week EMA) - 1) * 100)).

  • Note that before May 2021, there have been only 3 previous occasions when this ratio exceeded 0.50 - 1976, 1993, and 1999
  • The ratio pierced 0.50 for only the 4th during the week of 5/7/2021

Let's look at the previous instances. The ratio exceeded 0.50 during February, March, April, August, September, and October 1976. You can see in the chart below that gold first worked lower for a while before moving significantly to the upside. 

The next round of signals occurred in February and March of 1993. This proved to be a low-risk buying opportunity as gold rally sharply over the next 3 months.

The third instance of signals occurred in June and July of 1999. Gold drifted lower for a short while and then spiked sharply higher (albeit only briefly) during September and October.

The final and most recent instance occurred on 5/7/2021. The recent chart for gold appears below. Since then, gold has worked moderately higher, albeit with a pullback in recent weeks.

The problem, of course, is that this is a tiny sample size of instances to draw any conclusions from. To get a sense of what this signal has meant in the past, the table below displays:

  • the largest gain for gold within 12 months of each previous signal
  • the largest decline for gold with 12 months of each previous signal

SUMMARY

Nothing discussed above guarantees that gold will not decline in the weeks and months ahead, let alone that it will, in fact, rally in any meaningful way. A useful confirmation signal would occur if the Gold/S&P 500 Ratio closed above its 200-week exponential moving average. See the chart below and this article for more details.

The bottom line is that gold appears to be nearing a crossroads - inching ever closer to deciding the direction of the next major movement in price.

Sorry, you don't have access to this report

Upgrade your subscription plan to get access
Go to Dasboard
DATA &
TECHnologies
IndicatorEdge
‍
BackTestEdge
‍
Other Tools
‍
DataEdge API
RESEARCH
reports
Research Solution
‍
Reports Library
‍
actionable
Strategies
Trading Strategies
‍
Smart Stock Scanner
‍
FREE
RESOUrCES
Simple Backtest
Calculator
Simple Seasonality
Calculator
The Kelly Criterion
Calculator
Sentiment Geo Map
‍
Public Research Reports
‍
Free Webinar
COMPANY
‍
About
‍
Meet our Team
‍
In the News
‍
Testimonials
‍
Client Success Stories
Pricing
Bundle pricing
‍
Announcements
‍
FAQ
© 2024 Sundial Capital Research Inc. All rights reserved.
Setsail Marketing
TermsPrivacyAffiliate Program
Risk Disclosure: Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

Hypothetical Performance Disclosure: Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.

Testimonial Disclosure: Testimonials appearing on this website may not be representative of other clients or customers and is not a guarantee of future performance or success.