Gold Resolves Some Bearish Divergences

By Tom McClellan

Gold vs Japanese yen
April 16, 2017

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.

Gold priced 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.

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Gold Bound to the Yen

By Tom McClellan

Gold Bound To The Yen

Gold and Japanese yen
August 18, 2016

You might have to be a real inter-market analysis geek to know this, but for the past several years the fortunes of gold prices have been inexorably tied with those of the Japanese yen.  So to get a real gold decline, it makes sense that we should expect to also see a big drop in the value of the yen.

That ought not to be that hard to achieve.  The Bank of Japan (BoJ) is working hard on its own version of QE, spewing more yen onto their banking system.  And we just learned on Aug. 17 that Japan’s exports sank 14% from a year ago, and its imports dropped even further, at 24%.  With a weakening economy like that, surely the yen should weaken, no?

Not so far.  We are in Strangeville now, a time when word of the FOMC contemplating rate hikes causes a rally in both stock and bond prices, and when word of a slowing economy in Japan is seen as good news for the yen.

The yen’s movements have also been correlating with T-Bond prices, except that bonds have not been keeping up with the yen’s rebound back to its prior high.

T-Bonds and Japanese yen

Given how they normally correlate, one or the other is “wrong”.  Either the yen is wrong for surging ahead without support, or T-Bond prices are “wrong” for not keeping up when they are supposed to, and thus will have to work extra hard in the coming weeks to make up for lost time.

My bet is on PM Abe stoking another round of “Abenomics” to push down the yen in order to help exports, and thus also to hurt gold and T-Bonds.

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Capping the Yen’s Effect

By Tim Knight

Well, it’s another morning of lifetime highs across the board. Last Friday’s jobs report was the truckload of jet fuel the bulls needed. We’ve reached escape velocity, as the breakout from the pattern shows:

0714-es

I believe an important driver of this strength has been the USD/JPY, which bounced firmly off the Fibonacci level I’ve marked in magenta below. The rise has been fast and furious, but take note of the green tint now: this is the next level higher, and one I believe will cap this rise (in spite of the daily chatter about big “helicopter money” announcements forthcoming from the land of the rising sun).

0714-YEN

Of course, on mornings like this, a portion of this may be wishful thinking on my part. The bulls are large and in charge, and at this point, only a string of earnings shocks would reverse the tide.