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Chart In Focus

Gold Breaks Downtrend, Sort Of

Chart In Focus
January 16, 2014

Which of these statements is true:

1.  Gold is still in a downtrend.

2.  Gold has broken its downtrend.

It turns out that they are both true, but only if viewed from the proper perspective.  The price plot of gold as priced in dollars is still below the declining tops line which dates back to late August 2013.  But the same line drawn on the plot of gold priced in euros has already been broken. 

So who's right?  The short answer is that the euro price of gold has nearly always proven to be "right" when there is a disagreement between the two plots.  Such disagreement can appear in a few different forms, but the two I pay most attention to are (1) divergences, and (2) different trendline behavior.  It is the second category which is of interest now.

Gold prices have just started the process of building a pattern of higher highs and higher lows to define an uptrend.  But we already have a broken downtrend line on the plot of gold priced in euros.  A couple of other examples of trendlines on each plot are shown in this week's chart, and you can see that in each  case, the euro price plot broke its downtrend line ahead of the equivalent line being broken on the dollar price.  Indeed, the leftmost example did not even see the dollar price break its trendline, although there was nevertheless a pop upward after the euro price broke its downtrend. 

Whether this sign of a downtrend break is going to turn into a real live uptrend, or just a brief pop and fizzle like the last two, is not something that this difference in behavior tells us.  All it says is that there is a disagreement between the dollar price of gold and the euro price.  History says that the euro price is nearly always right during such disagreements, so I expect that to be the case again this time.

Tom McClellan
Editor, The McClellan Market Report

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