Gold On Balance Volume Made A New Low

 | May 21, 2016 01:22PM ET

This time, I'm going to change up the weekend newsletter and focus on the 8-year cycle. I compiled a brief list of arguments supporting its early arrival and separate evidence opposing it.

I originally expected a fake-out rally that would fool many into believing the bear market was over before a final plunge lower. An incident like that would get the remaining gold bugs to throw up their hands in despair, and a new bull run could begin. However, if this was a false rally, then it was the most convincing representation I've ever witnessed.

Evidence supporting:

  • The HUI broke last year's high and rallied 136% in less than 4-months; the strongest move ever recorded.
  • The HUI took out three previous intermediate-cycle highs.
  • The US dollar came very close to breaking major support (91.88) and confirming a multi-year top.

Evidence against:

  • Weekly gold on balance volume (OBV) diverged and then made a new low.
  • Neither gold nor silver exceeded their 2015 yearly cycle highs, although they came very close!
  • An 8-year cycle has never bottomed a full year early.
  • Silver prices are cyclically at the point (21 months) where they could begin a sharp move to new lows.

There is conflicting evidence supporting both camps. I believe a move to new lows within the regular timing window (August 2016 to February 2017) for an 8-year cycle would be good; it would decisively clear sentiment.

The overall picture will clear up by the end of next month after we see what happens with Britain exiting the EU and a potential Fed rate hike.

US dollar weekly - The dollar climbed higher for the third consecutive week, but prices are quickly approaching the 20/50 week MA crossover and could stall next week.