McClellan Chart in Focus: Gold in Euros Not Confirming. History shows that this is a problematic sign for the gold rally. by Tom McClellan

 

Chart In Focus

Gold in Euros Not Confirming

Chart In FocusSince 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.

Tom McClellan
Editor, The McClellan Market Report

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About the author

Sherman and Marian's son Tom McClellan has done extensive analytical spreadsheet development for the stock and commodities markets, including the synthesizing of the four-year Presidential Cycle Pattern. He has fine tuned the rules for interrelationships between financial markets to provide leading indications for important market and economic data. Tom is a graduate of the U.S. Military Academy at West Point where he studied aerospace engineering, and he served as an Army helicopter pilot for 11 years. He began his own study of market technical analysis while still in the Army, and discovered ways to expand the use of his parents' indicators to forecast future market turning points. Tom views the movements of prices in the financial market through the eyes of an engineer, which allows him to focus on what the data really say rather than interpreting events according to the same "conventional wisdom" used by other analysts. In 1993, he left the Army to join his father in pursuing a new career doing this type of analysis. Tom and Sherman spent the next 2 years refining their analysis techniques and laying groundwork. In April 1995 they launched their newsletter, The McClellan Market Report, an 8 page report covering the stock, bond, and gold markets, which is published twice a month. They utilize the unique indicators they have developed to present their view of the market's structure as well as their forecasts for future trend direction and the timing of turning points. A Daily Edition was added in February 1998 to give subscribers daily updates on their indicators and also provide market position indications for stocks, bonds and gold. Their subscribers range from individual investors to professional fund managers. Tom serves as editor of both publications, and runs the newsletter business from its location in Lakewood, WA.