Some of the recent confusing ambiguity in the cycle patterns of gold and silver is clearing today as the price of silver drops dramatically below its Aug. 15 low of $14.35. As readers may recall (or maybe not - I know this stuff gets confusing at times), we were speculating that Aug. 15 could be the start of a new medium-term cycle in silver and also in gold (with its low of $1161 on Aug. 15). We can now confirm that is not the case for silver and that this metal is going lower to complete an older medium-term cycle bottom. But what about gold? Well, gold prices are still above that low of $1161 from Aug. 15, and as long as the price stays above there it could indeed be the start of a new medium-term cycle in this metal (it would be starting one before silver).
From a trading point of view, we are now seeing an ideal setup to buy both gold and silver because we are near the end of a medium-term cycle in silver, and we're seeing intermarket bullish divergence with gold as silver makes a new cycle low and gold stays above its Aug.15 low (which was likely the start of its new medium-term cycle a few weeks before silver). What would make this setup even better would be to have it in a reversal zone. We are entering one tomorrow (Sept. 5 - 17) for equities, but this could also have an influence on the precious metals. We need to carefully watch these prices over the next several days to see if silver goes lower and especially to see if gold can remain above its $1161 low. If that low does not break, it could be an ideal time to buy both metals. Another argument to go long in precious metals now is the fact that COT (Commitment of Traders) charts are currently very bullish for both gold and silver. Staying on the sidelines for now but looking to buy both metals soon (possibly over the next few days).
The U.S. Dollar Index continues to rise from its recent bounce at 94.5, but we are entering another reversal zone for currencies this Friday (Sept. 7 - 17) so we could see the dollar top out in his time period and make another correction down. Because it is late in the current medium-term cycle of the dollar, such a correction could be steep. If that happens, it would give a strong boost to gold and silver prices.
We did not get a typical holiday (Labor Day in the U.S.) week-end rally in the broad stock market last week as I had been expecting. Instead equities fell a bit from mid-week highs into Friday. Those highs, however, were technically not in a reversal zone so it is still very possible this market will push higher into a new reversal zone that starts tomorrow and continues through next week (Sept. 5 - 17). If this happens, we will have an ideal setup for a top to sell short, especially if one of the three major indices (DOW, S&P 500, or NASDAQ) makes a new high without the other two (right now that looks like it could be the NASDAQ). We are keeping in mind that we are in the second half of the current medium-term cycle in all three indices so we should be looking for a final top and correction to final cycle bottoms soon. There are several other factors suggesting that these corrections could be steep. This is why we are keen on selling this market short from any significant high we can identify. Hopefully, we will see such a high in this new reversal zone, but if these markets continue to fall into next week we could get a low instead of a high and we'll have to revise our trading strategy. Still on the sidelines of the broad stock market.