Gold Nears a Bottom, but the First Breakout May Fail

Gold (XAU) is starting to show signs of stabilization after falling about 28% from its late January high. The structure is still corrective, with a clear sequence of lower highs and lower lows, but price is now reaching an area where there has historically been meaningful technical support. That does not confirm the bottom is in, but it does suggest gold may be entering a broader basing process.

What stands out is how closely the current move resembles the gold cycle surrounding the 1980 peak. The timing is compressed today, but the price behavior is remarkably similar. In both cycles, gold moved through an early period of consolidation, began a strong bull run, pulled back to test support, and then accelerated into a parabolic peak.

After the peak, both periods produced a major drawdown followed by several sharp rebounds and additional declines. In each case, price eventually formed a narrowing wedge as the correction developed.

That comparison matters because the 1980 cycle shows that the first breakout from the wedge did not immediately begin the next sustained advance. Gold initially broke above resistance, which encouraged buyers to become bullish, but then moved along the declining trend line and eventually made another lower low before establishing a more durable bottom.

Gold could be preparing for a similar move now. We may see a price break above the current wedge, move sideways around the former resistance line, and then drift lower again before the larger bottom is completed. Even after that bottom forms, the recovery may not be a straight move higher. The historical pattern included a major rally, another pullback, and a retest of the same general support area before the longer-term advance continued.

That makes the area around $3,900 especially important. Anything below $3,900, or near $3,900, is considered an accumulation zone. Gold has already reached that general area after correcting from levels above $5,000. A move toward $3,500 also remains possible, so patience still matters even if price begins to show short-term strength.

The longer-term outlook remains bullish. The next major cycle peak is projected between 2029 and 2031, with gold potentially reaching approximately $13,000. That does not mean gold must wait until then to reach another all-time high. The next all-time high could happen considerably earlier, while the $13,000 projection represents the potential peak of the broader cycle.

The biggest difference between the current environment and 1980 is monetary policy. During the earlier period, extremely high interest rates helped bring inflation and the gold cycle under control. A comparable policy response today could require interest rates between 15% and 20%.

With the current level of United States debt and interest payments, rates that high could push the economy into a severe depression and create enormous financial pressure within one or two years. The government simply has far less room to use the kind of aggressive monetary policy that existed during the Volcker era.

That limitation may help explain why gold cycles are becoming shorter. There was a long period between the 1980 and 2011 peaks, followed by a shorter period between the 2011 and 2026 peaks. Faster growth in government debt and the more rapid expansion of fiat currency supply could continue compressing these cycles.

So, gold may be getting closer to an important bottom, but the historical pattern warns against assuming that the first breakout will confirm the correction is over. A near-term move higher could still be followed by more sideways movement or another decline.

The key levels remain $3,900 as the broader accumulation area and $3,500 as a possible deeper downside level. The longer-term setup still points toward a major advance and a potential cycle peak near $13,000 between 2029 and 2031, but the path is likely to remain uneven. This is a market where patience and price discipline matter more than trying to call the exact day the bottom arrives.
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