Playing the 8-Year Gold Cycle

December 1, 2023No Comments

Today we’re going to talk about Gold. We’re going to talk about an 8-year gold cycle. A lot of the research I’m going to be drawing from is from [00:00:30] SentimenTrader.com. So, I do want to give them credit. By the way, if you like sentiment research reports, these are the people to go to. The subscriptions aren’t that expensive and they allow you to access all of their sentiment research. But the other neat thing that comes with their subscription is they send you daily updates. Now, depending on which program you buy, they give [00:01:00] you deeper (or not-so-deep) research on the daily report, but it’s a really comprehensive package either way.

 

  The 8-Year Gold Cycle

 

What I’m going to be pointing out today is some research done by Jay Kaeppel who I have interviewed here on the Smart Money Dumb Money Show. And if you are interested, I encourage you to on the video search engine, [00:01:30] just type in JAY and you will find the interview I did with him less than a year ago. Smart guy, a very analytical person as everybody is over at SentimenTrader, and I do encourage you to watch that video. He talked about some metrics you can use to determine if the market is looking bullish, bearish, or neutral. So, without further ado, I want to introduce this eight-year cycle that I was not aware of before [00:02:00] I looked at it. I’ve done a few of my own charts to illustrate this cycle that Jay talked about in his research report.

 

I’ve put together a bit of a presentation in my own words so that you might help your own trading in Gold and understand the 8-year gold cycle timing on that trading. So, let’s take a look at the cycle. I’ve put together a PowerPoint and it’s kind of interesting, So, this is really an eight-year full [00:02:30] cycle, but it’s a four-year bull cycle, four-year bear cycle in Gold Producers. Now that cycle, by the way, Jay pointed out that it was on the mining stocks, but actually, as I’m going to show you in the first slide, it also applies to the Bullion as well. So, as you’ll find out, I’m going to give away the punchline here. The next cycle on Gold for a bull part of that eight-year cycle [00:03:00] is coming soon.

 

Comparing Gold Bullion to the Producers

 

Let’s take a look at what we’re talking about. This is verbiage right out of Jay’s research report, and he said, ‘Gold mining stocks have shown a tendency to move in an eight-year wave: four favorable years followed by four unfavorable years.’ So, let’s talk about that. First, I want to show a chart that I put together that is not out of Jay’s research. I wanted to compare how Bullion is doing to his Gold [00:03:30] Producer cycle. What I found was that the cycle does in fact reflect in Bullion what it reflects in the minors. So, this in red is the positives on his cycle, which is the positive years were 61-64, 69-72, and so on.

 

And these [00:04:00] are the opposite years. So, from ‘64 you ended up with 65-68 as the negative year, et cetera. So, generally speaking, if you look at my black arrows versus my red arrows, there were a couple that were sideways. This black arrow by the way was not actually a negative. I made it go down, but as you’ll see on the actual statistics, the 65-68 period wasn’t bearish at all. But, on average you can see even on the Gold Bullion chart [00:04:30] that the cycle was pretty good that if you followed the opposite four years, you got either a flat or bearish move, whereas if you followed the bullish moves, you got generally positive moves with only one flat period here. So, we’re going to look at those stats in a minute, but you can see for Bullion the cycle definitely was in place.

Gold BUGS Index

 

You’ll see that the Gold BUGS Index, which is an index you can look up on StockCharts, [00:05:00] it’s been around a long time. It’s the Gold Producers, and you can see that going right back to the early 60’s per Jay’s cycle, that generally speaking, the returns on those four-year cycles have been magnificent.

We’ll be talking about the next one that’s due in a minute, but I want you to take a look at this chart and then compare it to the next chart, which is if you did the unfavorable four years. So, this is almost like looking at a seasonal [00:05:30] chart, isn’t it? Except this is on a rhythmic four-year bull and four-year bear period. You can see that in the first couple of years, that the unfavorable cycle was actually bullish, but the rest of the time with one other final exception to the upside, the four-year cycle was bearish and it ended up looking very, [00:06:00] very positive.

 

If you only invested in Gold during the positive cycle years, and it looked very negative if you invested in the negative years despite those first two cycles, as we saw in the chart being positive during the supposedly negative four-year periods. Generally speaking, there was enough downside over the negative years to offset those few positives.

And, there was only one negative, [00:06:30] and I viewed it as flat on the Bullion chart, but you can see on the actual Producer chart it was bearish. So, there was an average rate of return because of the 2001 and the 1977 cycle of 122%. Now let’s say the median rate of return is probably a better way of looking at it during those four years, and that was 69%. So, not a bad return for three years of investing to make 69-70% on your money, [00:07:00] versus losing an average of 16%.

I’m going to skip back to the chart that I missed. This is the most recent year. If we again go back and look at the cycles that we’re talking about, 61-64, 65-69, et cetera, I’m starting here in the 2000’s on this chart because this is the recent Gold BUGS Index. It’s the same index that we were looking at, just a closer look. From the first cycle was 05-08, [00:07:30] that was supposed to be a negative cycle, and sure enough, if you look, there’s ‘05 and there’s ‘08 right there and generally speaking it was pretty flat. So, the 8-year gold cycle seems to be working – big upswing the next four years, big downswing the following four years, and so on, the cycle’s been working.

HUI Gold bugs chart  8-year gold cycle

So, the current cycle on the Producers, well now remember the Bullion is slightly different and you know that Bullion is bumping up against a [00:08:00] high level. Bullion is bumping up against 2,000, actually. I’m going to go back to that Bullion chart just to see that. Here is the super long chart going back to 1969 on Bullion, and you can see it’s been stuck around 2,000, but it’s not been bearish, it’s been sideways, very, very choppy.

It’s bumping its head against 2,000. And by the way, I’m recording this on the 21st of November and we’re touching 2,000 as I speak [00:08:30] on Gold. I don’t know if it’ll break through. It’s been suffering and trying to get through, but it’s certainly not been a bearish producing position. So, when you look at the Producers, and many of my blog readers have noted this, in fact, put comments to this effect that the Producers have been in the hole, they’re net negative over the past one, two, and even three years.

 

So, that’s probably because of this 8-year gold cycle that Jay is [00:09:00] talking about. The good news is that this cycle will end in ‘24 and then that should be a great time to buy it in 2024. It should be a time that we can look forward to rising prices on Gold and maybe catching up to the performance of Bullion after 2024. Remember, the next positive year for the [00:09:30] Producers is 25-28. So, it should be an opportunity to start buying some time in ‘24 if you believe that the 25-28 period is going to be bullish.

 

This is the iShares Global Gold Index, which is different than the Gold BUGS Index we were just looking at, but more or less the same idea that it’s not been a very good producer since ‘21. [00:10:00] You can see net negative or flat, kind of flat really. So, I want you to consider that maybe it will be flat for another year, but at some point in ‘24 maybe we should be looking at this index as a place to load up on. Gold Bullion itself has been very good and my thoughts are that if Gold Bullion breaks $2,000, then there’s plenty of upside [00:10:30] that will be eventually reflected as the cycle in the Producers comes around.

 

8-Year Gold Cycle vs the US Dollar and Stagflation

XGB chart  8-year gold cycle

Now, why might Gold break $2,000? And I’m not making a prediction here because I don’t believe anything until it happens. I’m a Trader and a Technical Analyst and the charts are all that really matter to me. So, the chart suggests there is an awful lot of resistance on Bullion at $2,000. But, if it breaks $2,000, that’s positive. Why might it break? [00:11:00] If you saw my last video on Israel and Germany, I talked about the fact that we at ValueTrend have been buying international indices. We’ve got some emerging markets too.

 

We like the international markets more than Canada and the States. And, one of the reasons why some of these international markets might do okay is because of the US dollar declining. [00:11:30] It helps their profitability don’t forget. But it also helps us if we buy, say an ETF or an ADR (American Depository Receipt) that represents an international stock because if their currency’s climbing against the US Dollar, we’re making money on that exchange difference.

I think that the US Dollar has three or four more cents, it peaked out at about 106 on the world basket, [00:12:00] it’s already down to 103 and support lies around 100 as the next stock. That’s 3 or 4% lower from current. I think it’s 100.60 or something today as I was looking at it this morning. So, I think we’ve got a few percentage points upside on the US Dollar. That suggests an upside on Gold.

 

Will it break $2,000? That’s a question I can’t answer, but there’s a reason that it might happen. Also, inflation has come down, but I’ve talked about stagflation many [00:12:30] times. If you’ve not seen my Stagflation video, please take the time to do so. It’s probably one of the more important videos I’ve done in a long time. I do believe that we’re going to see about 3% inflation, which by the way is the historic norm. 2% was not normal that we saw over the past couple of decades, so we should see about 3% or so. It’s just above that now. I think it’s about three and a half, for the coming years. And if that’s the case, then [00:13:00] we could be entering into an era where commodity-sensitive securities like commodities and I’ve talked about that before, could be bullish for the coming decade or so.

 

So, these are all big-picture things, but I do want you to keep Gold in mind as its 8-year gold cycle comes around. Now remember, cycles are just tendencies. So, here’s Gold again, you can see that big lid at $2,000. But what’s interesting here, by the way, is that [00:13:30] the indices are showing some of the indicators below the indices as picking up. This is money flow momentum.

This is force – which is kind of a combination of volume and momentum, and this is rate of change, which is a very simple momentum indicator just based on price. All of these are picking up for Gold Bullion, whereas if you look at the Producers here, they’re [00:14:00] not. They’re all kind of flat, aren’t they? There’s your rate of change. Take a look at the difference here. Big, big difference. So, I think there’s some potential for Gold to break out.

8-year gold cycle continuous contact chart

I’m not predicting by the way. I never predict anything, because anything can happen. But, if it does break out, that would be exceptionally bullish for Gold because there’ll be nothing holding it back from that point.

You’ve got a weakening US Dollar, you’ve got relatively high inflation there, sticky inflation at around maybe 3% or so, [00:14:30] and you’ve got lots of indicators that are just starting to move and could really suggest a much higher price for Gold in the future. It won’t make predictions unless that lid breaks that I’ve got marked with my big purple line here, but it is worth talking about.

My Conclusions

So, my conclusions: Gold rotates in an eight-year bull market, according to SentimenTrader, four years bull, four years bear. We [00:15:00] are in the four-year negative or neutral part of the cycle, and you can certainly see that on the Producers, they have been negative, not the Bullion, but the Producers have been negative.

 

That should end in 2024, and 2025 should theoretically start picking up, and I think there’s enough evidence in the Bullion that suggests that that could support the Producers to eventually start moving. The US Dollar looks to support a breakout for Bullion. Again, see my [00:15:30] last video, but basically. I see 3 or 4 cents down on the Dollar on the world basket of securities. That’s 3 or 4%, okay, that will add to support for Gold.

Gold Producers have been lagging Bullion, but both could be longer-term upside plays if Gold highs are taken out. In other words, that 2,000 or so lid that we just saw on the chart. A little bit of a lengthy video, but I [00:16:00] hope that really gives you some ideas. I think you need to keep Gold in mind for the coming years because there’s a lot of evidence to suggest that it might be a good place to be.

 

I don’t know that it’s going to move much in the next year, but I do feel that in the next five years, we might just be rolling ahead by owning some Gold so you can time it as you wish, and do use your own analysis and do keep an eye on the charts because at the end [00:16:30] of the day you should be – as I am – a Trader. We don’t follow themes, even a bullish Gold theme. All we do is watch the charts and the charts will tell us to do what we need to do. Thanks for watching this video on the 8-year gold cycle . See you next week.

 

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