Gold Market Oversold Reaction Continues

As expected, the recent two-session crash in the gold market has been followed by a violent oversold reaction. Following the 13 percent decline in mid-April, gold has rebounded more than eight percent during the last eight sessions.


With respect to short-term cycle analysis, the strong advance today has caused a change to our preferred scenario and it is now likely that the beta phase rally is in progress. Additionally, the move well above the last alpha high (AH) during the beta phase rally signals the likely transition to a bullish translation.

As we noted two weeks ago, technical and cycle analyses produce reliable outlooks when price movements are well behaved, but abrupt crashes like the recent decline severely limit the usefulness of these techniques. Therefore, short-term forecasting will remain difficult until the market stabilizes and we will need to wait for renewed clarity to emerge from subsequent price behavior.

From an intermediate-term perspective, the breakdown of the consolidation formation that had been developing since 2011 was followed by a quick return to the next meaningful support level in the 1,400 area. The strong rebound this week suggests that the 1,400 level will hold during this initial test, but it is likely that the violent price behavior of the past three weeks will continue in May.


A weekly close above 1,481 tomorrow would generate a cycle low signal on the weekly chart, indicating that the half cycle low (HCL) of the intermediate-term cycle from March likely formed last week.

Extreme moves often result in cycle compression, so the formation of a very brief cycle from March would not be unusual following the recent crash. However, the recent breakdown of the long-term consolidation formation was a significant bearish signal and it is too soon to know if a meaningful intermediate-term low occurred last week. Therefore, it will be important to monitor price behavior closely heading into the forthcoming ITCL for the next assessment of gold market health.