Cycle theory is a risk management tool for helping to time optimal buy points in a bull market.  It is not very useful for timing sales.  The reason for this is that cycles are measured from trough to trough.

For “intermediate” cycles, one references the weekly chart.  The troughs are established by “swing lows” (google the term if you are not sure what that is).  Cycle theory is based on empirical cycle lengths.  For gold, on average, I would say its cycles are anywhere from 24-30 weeks.  In a trending bull market, each intermediate cycle low will establish a higher low.

Gold’s last intermediate cycle low came the week of March 16th.  The cycle peak (marked by a swing high) came on week 20 (as measured from the March 16th low).  One tool that cyclists use to determine whether the cycle has truly peaked and is in decline is to see if the trendline established since the last ICL is broken.  In the chart below you can see that the blue trendline was clearly broken in August, confirming that the swing high on week 20 was in fact the cycle peak.

Once the trendline was broken, and knowing that gold cycles last 24-30 weeks on average, you can then try to time your next buy.  A strict cyclist would wait for a weekly swing low between week 24-30 of the cycle to get long.

As of today (34 weeks into the intermediate cycle), however, $gold has still not made a weekly swing low, so a pure cyclist would not be buying $gold yet.  He would wait for a weekly swing low and THEN get long.  One important tool that can be used to confirm that the cycle low is in is that the downtrend line established from the cycle peak will be broken.  But we do not even have a weekly swing low yet, so that does not come into play yet.

Cycles are not a perfect timing tool for timing buys in a bull market.  It is a tool for managing risk and nothing more.  That being said, the next weekly swing low in $gold has a VERY high probability of marking the intermediate cycle low since the cycle is already 34 weeks long.  By definition, a strict cyclist will never ever buy the EXACT low, since a swing low has to be established first.  Once a swing low is established, if he wants, the cyclist can set the swing low as his stop loss.

Again, is it foolproof?  No, but it is far better (i.e., lower risk) to be buying the next weekly swing low than blindly buying on say week 20 or 21 when $gold was $2000+.  This is especially true if you are using margin and run the risk of a margin call if you “bought high,” even if you are ultimately right about the long term trend.

(One final note:  I am NOT a strict cyclist, as I added to my positions on September 24th, taking a gamble that that would be the cycle low–that gamble was clearly wrong, but a strict cyclist would have never taken that bet for the reasons outlined above.)