Gold In Euros Not Confirming

Since bottoming on Dec. 12, gold has had an impressive run higher, closing up on 13 out of the past 14 trading days. Or at least that's true for gold prices measured in dollars.

But gold prices measured in euros have had a much more tepid response, and have not even made a higher high yet. It is not a bad rally in the euro price of gold, but it is not confirming the higher high in the dollar price. History shows that this is a problematic sign for the gold rally.

Divergences are an important element of technical analysis. But they pop up everywhere, with one thing not matching another thing's behavior. The key to sorting out the important messages is to identify which index or indicator is the giving the correct message.

In the case of gold prices, when the dollar price and the euro price disagree, it is usually the euro price that ends up being right about where both are headed. So to see the euro price of gold failing to make a higher high in step with the dollar price, that says the dollar price of gold has ventured a bit further than it should, and that a corrective move is likely.

Related Article: Gold's 8-Year Cycle

Tom McClellan
Editor, The McClellan Market Report

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