McClellan Chart In Focus: Gold Moving Lower Despite Covid-19. By Tom McClellan

 

Gold futures fell $52/oz on Thursday, March 12, the same day that stock prices fell 10% and everyone is worried about catching Covid-19.  How can that be, since gold is supposed to be a “rainy day investment”?

The answer in part is that people buy gold in case of a rainy day event.  But when the rainy day gets here, people sell gold so that they can get money to buy actual things.

Gold prices should start trending down now, and for the next 5 years, according to this week’s chart.  I noticed several years ago that there is an interesting 8-year cycle evident in gold prices.  It is a rather unusual looking cycle, as depicted by the idealized pattern shown in the chart.

I created that pattern back in 2003, based on how gold prices had behaved from the 1970s through the 1990s, and I have just extended it from then to the current day.  It has worked pretty well over that period, although I have to concede that gold prices had a much more bullish version of it during the 2000s.

The pattern involves a 3-year up wave, and then a 3-step five year down wave.  The pattern shows that the latest 3-year up wave is supposed to have peaked in January 2020, and so February’s closing high of 1609.85 is pretty close to being on time for that schedule.  Now we are into the 5-year declining phase, which should take gold prices generally lower until early 2025.  As noted in the chart, there is some variability about when those 8-year bottoms tend to arrive.  It is ideally due in early 2025, but based on past variability it could come in anywhere from August 2024 to March 2025, and still be considered “on time”.

The mere idea of a 5-year bear market for gold seems counterintuitive, given that we have negative real interest rates, and a world economy thrust suddenly into turmoil by Covid-19 and the Russia-Saudi oil games.  But this cycle has been working pretty darned well ever since shortly after gold first started freely trading in 1975.  So it is tough to discount.

Tom McClellan
Editor, The McClellan Market Report

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About the author

Sherman and Marian's son Tom McClellan has done extensive analytical spreadsheet development for the stock and commodities markets, including the synthesizing of the four-year Presidential Cycle Pattern. He has fine tuned the rules for interrelationships between financial markets to provide leading indications for important market and economic data. Tom is a graduate of the U.S. Military Academy at West Point where he studied aerospace engineering, and he served as an Army helicopter pilot for 11 years. He began his own study of market technical analysis while still in the Army, and discovered ways to expand the use of his parents' indicators to forecast future market turning points. Tom views the movements of prices in the financial market through the eyes of an engineer, which allows him to focus on what the data really say rather than interpreting events according to the same "conventional wisdom" used by other analysts. In 1993, he left the Army to join his father in pursuing a new career doing this type of analysis. Tom and Sherman spent the next 2 years refining their analysis techniques and laying groundwork. In April 1995 they launched their newsletter, The McClellan Market Report, an 8 page report covering the stock, bond, and gold markets, which is published twice a month. They utilize the unique indicators they have developed to present their view of the market's structure as well as their forecasts for future trend direction and the timing of turning points. A Daily Edition was added in February 1998 to give subscribers daily updates on their indicators and also provide market position indications for stocks, bonds and gold. Their subscribers range from individual investors to professional fund managers. Tom serves as editor of both publications, and runs the newsletter business from its location in Lakewood, WA.