Lately I've been seeing quite a few analysts calling for a top in gold. I have to say these analysts don't really understand what's happening. If they did they would know that far from topping, gold is just getting started.
Just as a preface let me point out that the fundamental driver of this leg up in gold is the same driver that it's been for the entire 10-year bull market: currency debasement. Only now every country in the world is getting in on the race to the bottom. That being said it's the dollar's turn to collapse. The euro had its spell earlier in the year and now that cancer has infected the world's reserve currency...just like I said it would.
Let me show you a long term chart of the US dollar so you can get a clear picture of what is unfolding.
About every three to three and a half years the dollar drops down into a major cycle low. I call it the three-year cycle low but the average duration is three years and three months trough to trough. The dollar is now on its way down into that major bottom. After a brief bounce off the lows later this year I expect we will see the dollar roll over early next spring as the final plunge begins and the currency crisis reaches a climax.
Next let me show you a chart of the smaller daily cycle:
This smaller daily cycle tends to run about a month (18 to 25 days) trough to trough. We are now deep in the timing band for this cycle to bottom. Once it does (it may have on Thursday) we should see a weak rally, possibly back up to test the all important pivot at 80. That should pressure stocks and gold down into their respective cycle lows. I suspect many will take this as a sign that gold's run is over. It won't be.
Gold's drop into the now due cycle low shouldn't last more than four to eight days. That's about how long we can expect the dollar rally to last as it will only be a dead cat bounce to relieve oversold conditions and ease sentiment extremes. Then the dollar will roll over into another decline that should bottom in early November and will likely test the 74 pivot. Again after another weak rally the dollar will crash down into a daily, intermediate and yearly cycle bottom that should test the `08 lows at 71. That is the point where the gold rally should take a more significant rest.
As I noted in the above chart the intermediate dollar, and gold cycle for that matter, runs on average 20 weeks. Last week marked the 9th week of the dollar's intermediate cycle. It's way too early to look for a major bottom yet. If the cycle runs the "normal" 20 weeks then we won't get an intermediate bottom until late December. Considering the last yearly cycle low came in early December of `09, mid-December should be a fairly accurate target for an intermediate bottom.
I can assure you that while the dollar crisis intensifies this winter gold will not be sitting still and it certainly won't be topping.