Positive Divergence between the GCI and Gold

| April 29, 2010

The Gold Currency Index (GCI) continues to hold near recent all-time highs after the long-term breakout earlier this week.

Technical indicators are moderately bullish overall on the daily chart, so a continuation of the move higher and consequent confirmation of the breakout remain more likely. The positive divergence that has existed between the GCI and gold in US dollar terms remains in place as the latter is still well below its all-time nominal high from December.

Technical indicators are moderately bullish on the gold daily chart as well, so probabilities favor a continuation of the uptrend from early February and subsequent test of those December highs. We have been producing the GCI for five years now, and nearly every time a divergence has formed between the two, the GCI has correctly predicted the direction of the next significant move. The next technical objective for the GCI uptrend would be a weekly close at current levels or higher, as that development would confirm the long-term breakout on the weekly chart that occurred in early April.

We will be monitoring the close carefully tomorrow as a confirmation of the long-term breakout would be a bullish signal that would forecast substantial additional gains.

Category: Commentary, Market Update

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