Gold's 2 year cycle

A Mineweb reader has noticed a recent two-year cycle for gold price behaviour which, if it continues will likely give some guidance to price movements this year and next.
Author: Joseph Cafariello
Posted: Tuesday , 06 Jan 2009
view original article here

EDMONTON, CANADA -

There seems to be a two-year cycle in the gold price which has been repeating itself since about 2004. The even years follow one pattern, while the odd years follow another pattern. The even years tend to reach exaggerated extremes to the upside and to the downside on a percentage basis, while the odd years tend to be a little calmer with less volatility.

For example, 2008 went very much like 2006, with exaggerated highs reached in the spring of each year, and a late start to the traditional autumn-winter-spring upswing, which began around October/November of 06 and 08. On the odd-number side, 2007 went much like 2005, with moderate highs reached in May of each year, and an early start to the traditional autumn-winter-spring upswing, which began around August/September of 05 and 07.

If this is indeed a reliable cycle, we can expect 2009 to be much like 2005 and 2007 all throughout the year. The first half of 2009 should see gold follow the same pattern as the first halves of 2005 and 2007. In the springs of 05 and 07, gold kept hitting its head against the previous year's high all throughout the spring. More than once during the spring of 2007, gold topped out at about $690, coming to within about 5% of the 2006 high of $735. Similarly, the spring of 09 should see gold hitting its head against 2008's high of $1,035, coming to within 5% of it, or up to about $985. That will be the high for the first half of 2009 at around the beginning of May, though this will not be the high for 2009 as a whole.

Given the odd-number year pattern, we might also expect the back half of 2009 to be much like the back halves of 2005 and 2007. In both 2005 and 2007, the summertime pull-backs were modest, and the autumn-winter-spring upswings started early, at around August/September of 05 and 07. The latter half of 2009, then, should see a modest summer-time pull-back of about 5% to 7% of its spring 09 high, taking gold down from $985 in May 09 to about $925 by August 09. However, the low for 2009 will still be the upcoming January low of $800, which is now only about a week or two away. The lows of January 2005 and January 2007 were also "the" or "close to the" annual lows for those years. So the low of 2009 will be at around $800 in January.

The high for 2009 will come in December. The traditional autumn-winter-spring upswing in 2009-10 will be much as it was in 2005-06 and 2007-08, with an early start. The year-end run for 09 will begin around August or the beginning of September, jumping from about $925 in Aug/Sep 09 and rising steadily until the end of December 09. The annual highs for 2005 and 2007 were hit in or near December of each year, and each high was about 20% higher than the average of their first halves. Thus, the annual high of 2009 will be hit in or near December, and will be 20% higher than the average of its first half, putting the 2009 high at about $1,150 in December.

The traditional autumn-winter-spring upswing, however, will certainly not end in 2009, but will spill over into the spring of 2010 much as it did in the springs of 2006 and 2008. The high in the spring of 2008 was about 40% higher than high in the spring of 2006. Hence, the high in the spring of 2010 will be about 40% higher than 2008's high of $1,035, putting gold at about $1,450 in the spring of 2010. Then, the summertime pull back of 2010 will be just as stark as were the summertime pullbacks of 2006 and 2008.

And so the two-year cycle will continue, where even-number years follow a pattern of extremes, while the odd-number years are calmer, but with a nice upward kick at the end. This two-year cycle with even-number years on the extreme side and odd-number years on the moderate side will continue until the commodity boom is over (say around the year 2030, when the populations of China and India finally achieve a 75% middle-class), and until the US dollar recovers at around the same year (2030), when the rest of the world will be looking to the US as a nice place to shop given its then-to-be dirt-cheap dollar.

The above comment was contributed by Mineweb reader Joseph Cafariello who describes himself as "A raving gold bug and proud of it"