A week ago, it was not looking good for the gold bulls. The dollar price of gold had not yet made a higher high, even though the Japanese yen had already pushed to a higher high. When divergences like that happen, it is typically bearish news for both gold and the yen.
But what looked like a bearish divergence then has now been resolved in favor of the bullish case. The price of gold has now joined the yen in making higher highs.
This is an important point for all chartists to understand: just because you see what looks like a divergence, that does not mean it has to persist. Divergences do matter, and they deserve our attention, but they can resolve themselves so you have to keep watching and pay attention.
A similar divergence was also showing in the comparison between the dollar price of gold and the price measured in euros.
A week ago, the dollar price of gold seemed to have stalled at a downtrend line, even though the euro price had already broken the equivalent long before. And the price of gold as measured in euros had not yet made a higher high to confirm the dollar price’s higher high. That is a problematic sign, and I like to say that whenever the two disagree, it is usually the euro price that ends up being right about where both are headed. So it was troubling last week when we seemed to have a divergence.
Now that divergence has been made moot by the price of gold in both currencies moving higher. Remember that all divergences in real time are only potential divergences. One cannot call them “for sure” divergences until much later. Apparent divergences are worth noting, but not worth panicking about absent more proof. They can get resolved, as these examples illustrate.
Editor, The McClellan Market Report
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