Gold closed sharply higher today, reacting further off of recent lows of the downtrend from October. We have been monitoring the development of a positive divergence on the daily chart since early last week and the strong advance today has created a slightly bullish condition overall that tentatively favors a return to congestion resistance in the 1,475 area.
Our Gold Currency Index (NYSE:GCI), which tracks the intrinsic value of gold as an international currency, has developed an even stronger positive divergence, resulting in a moderately bullish condition overall on the daily chart that favors a return to its comparable previous high near 37.60.
Last week, we noted the potential development of the latest intermediate-term cycle low (ITCL) on the weekly chart of gold. The advance this week has caused both cycle analysis price oscillators to experience bullish crossovers and a bullish engulf pattern has formed on the weekly chart. In the absence of a sharp decline tomorrow that returns to the close on May 24 near 1,386, an intermediate-term cycle low signal will be generated this week, indicating that the latest ITCL likely formed during the week ending May 24.
The Gold Miners index is also exhibiting bottoming behavior. A weekly close above 813 tomorrow would generate an even stronger cycle low signal on its weekly chart, suggesting the likely formation of an intermediate-term bottom in the gold sector.
The long-term downtrend from 2011 remains in progress and it is too early to know with any useful degree of statistical confidence if the correction is in the process of terminating. However, the character of the rebound off of the latest ITCL will provide the next assessment of gold market health, so it will be important to monitor price behavior tomorrow for the potential development of this important intermediate-term signal.
Disclosure: I am long SGOL.