The Gold and Silver Cycles

Price patterns have a funny habit of repeating themselves over time. This was one of the things that Alan Andrews put to good use in his use of action-reaction. I haven't yet taken the time to draw the action-reaction lines on the big run higher in silver prices of the the late 1970's and early 1980's.

However, I did go ahead and put the action reaction lines on the most recent silver boom that peaked in 2011.

Alan Andrews saw the repeating price patterns and made them quite clear on his charts through the use of action-reaction lines. Quite simply, he would take any important pivot high or low and draw a line from the high to low, or low to high.

Then, after that he would go back in time and find the next important pivot high or low. He would then take an exact duplicate of his first line and place it at the pivot high or low. The line would therefore have the same slope as the initial line. Afterwards the process would be repeated back in time to the other important pivot points.

Next Andrews would do something interesting. He would measure the distance from his initial line to the first price pivot where the first line to the left of the initial line was drawn. Then he would draw a duplicate line an equal distance (in the future) to the right of the initial line. That step would be repeated until all of the lines drawn to the left of the initial line had mirror image lines drawn to the right of the initial line.

What Andrews found was that price tended to make significant moves, either higher or lower, when they touched or crossed the action-reaction lines.

So, in the case of silver, what does that mean. My suspicion is that when price contacts the next blue slanted line, it's likely to move in the opposite direction of whatever direction it is moving in at the time. I'm thinking price will move down and, at some point, start rising somewhere near the final blue line, and move lower after crossing it.

Somewhere after the final blue line price will bottom - likely somewhere around 2022 or later. A final cycle low will be made and then a new bull market in silver will start.

So, What About Gold?

The pattern in gold, unsurprisingly, looks similar to the pattern in silver. Unlike silver, I did take the time to draw action-reaction lines to the mid-1970's gold low up until the 2030's.

One thing striking about the gold chart is how the 1970's bull market in gold looks like the little brother to the 2000's bull run.

If the pattern works like I think it might then I could see gold making another run toward $1,395.40 before moving lower again. I would then expect the gold price to have another echo move higher.

After moving lower again I would expect gold to stay in a multi-year channel between $1,077.00 and $1,274.00. The gold price probably doesn't break out of that channel until around 2022 or later when it will start a new bull market.

Basically, we're looking at approximately 23-year cycles for gold and cycle.

1976-1999

1999-2022

2022- 2045

It is possible that this rally in the gold price will be the first head-fake rally, to be followed by another smaller one in about 5 years or so.

As someone who holds gold and silver, I would love this particular action-reaction cycle to be proven wrong.

However, up until now the gold and silver prices have behaved more or less as expected.

Bottom Line: Beware the bear market rally until and unless the bull is confirmed. I won't have confidence that gold is in a durable rally until it crosses above $1,493.50 (0.50 Fib Retracement Level).