It looks like gold did start a new medium-term cycle with its low of $1759 on Dec. 15. This means the cycle is only three weeks old and very young. Usually cycles are bullish in their early stage, and indeed, prices rose steadily from that low for two weeks. This week, however, saw a peak on Monday at $1831 followed by a sharp sub-cycle correction. That correction is falling into a weak reversal zone (Jan. 6-11) that is overlapping a much stronger reversal zone coming up next week (Jan. 11-20). This means we could see a bottom to this corrective dip anytime over the next two weeks and then (potentially) more rallying. Today's drop in gold prices broke support at $1800. If prices continue to fall, it's possible this young cycle could turn bearish in it's early stage. A close below the start of the cycle at $1759 would confirm this. Another bearish factor now is the fact that gold made a new weekly high Monday, but silver has remained below its high from last week (bearish divergence). If gold can find some support around $1792, we may consider going long, but any break below $1780, and especially below $1759 will keep us on the sidelines. We will stay on the sidelines of gold for now.
Unlike gold, silver is most likely an older medium-term cycle (that started with Sept. 29's low of $21.44) and could be ready to move down to its final cycle bottom. There is a chance (less likely), however, that silver started a new medium-term cycle with gold on Dec. 15 with its low of $21.45. In both silver scenarios, a significant low happened on Dec. 15 (either a new cycle started, or a significant sub-cycle correction happened in an older cycle). The question now is how low can this corrective drop from last week's high ($23.40) go? Today prices found support at $22. If that support can hold, as with gold, we may consider entering a long position. A break and close below $22, however, would be a bearish sign. A break below $21.45 would mean the trend has turned bearish, even if the cycle is a new one. Let's stay on the sidelines for now.
Our cycle labeling for crude oil is a bit ambiguous right now (similar to our cycle labeling for silver). Regardless of our cycle labeling, our main concern now is the steep rally that has taken off from the Dec. 2 low of $62.26 (Feb. contract chart). The deep corrective drop in crude prices on Dec. 20 was misleading as it seemed to suggest that prices were rolling over and that crude's cycle was turning bearish. But then crude seemed to align itself with Wall Street's "Santa Claus rally"and snapped back up vigorously.
This rally has been unusually bullish, and prices closed near $80 today. It's a bit late to be chasing this unexpectedly strong rally, so our strategy at this point is to wait for a significant sub-cycle correction for a possible spot to buy. We may not have to wait long for a top and correction because we enter a reversal zone specifically for crude next week (Jan.11 - 20). Crude's bullish rise suggests it is starting a new longer-term cycle, which means prices could be propelled significantly higher over the next several months. We'll stay on the sidelines of crude for now as we wait for a significant corrective drop to buy.