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GCI Negatively Diverges from Gold

|Includes: GDX, SPDR Gold Trust ETF (GLD), SGOL

At the beginning of the month, the Gold Currency Index (NYSE:GCI) broke below support at the lower boundary of the uptrend from late July, suggesting the possible development of a correction or period of consolidation. Today, the GCI broke below congestion support in the 34 area, confirming the start of a new downtrend.

Technical indicators are now moderately bearish overall on the daily chart, supporting the developing correction. Additionally, a slight negative divergence has developed between the GCI and gold in US dollar terms.

Notice that while the GCI has moved down to a new short-term low, gold remains above support at the lower boundary of the long-term uptrend. Technical indicators on the GCI daily chart have also weakened more than their counterparts on the gold chart. As longtime readers know, divergences between the GCI and gold have predicted nearly every major breakout or reversal since the GCI was created in 2005, so we pay very close attention to them. The current negative divergence suggests that an extended correction or period of consolidation has begun.

Disclosure: I am long SGOL.