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Euro Gold Price Divergence

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Euro gold price versus dollar gold price: Looking at the gold price chart in both euros and US Dollars can aid in making chart patterns a little clearer.

Terry Kinder precious metals analysisBullion.Directory precious metals analysis 18 September, 2014
By Terry Kinder

Investor, Technical Analyst

Looking at charts day after day, priced in your currency, whether, yen, euros, yuan or US Dollars can result in a sort of tunnel vision. You can forget that there is a wider world where trades are made in other currencies. Unfortunately, in the United States, it is far too easy, and many Americans, myself included, can fall victim to the illusion of the universality of the US Dollar. So, reading Tom McClellan’s excellent article, Gold – Watch the €1000 Level, represented a much needed wake-up call.

People often ask at what dollar price is gold likely to find support or resistance. But it can be argued that the dollar price of gold is not very relevant for a lot of the old-school technical tools. The static price levels of prior highs and lows do not generally show much significance as support or resistance agents once they are reached again.

The big reason for this is that gold is traded around the world, and in every currency. So what might look like an important support or resistance level on a dollar-based chart could look totally different in another currency.

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Before looking at euro gold price, we'll take a look at it in dollars

Before looking at the euro gold price, we’ll take a look at it in dollars

The above chart of weekly gold (Comex continuous) in dollars, as we’ll see in a moment, presents a different picture than the euro gold price. Here are a few of the significant features of the chart:

  • Gold price has fallen below the Keltner Channels which is a strong indication of downward price momentum;
  • The gold price exited the Andrews’ Pitchfork, failed to reach the price trigger line, and has fallen back toward the pitchfork;
  • MACD shows a bearish crossover and has fallen below the zero line indicating further dollar weakness is possible
  • Overall, the gold in dollars chart paints a pretty bearish picture. About the only thing it has going for it, which isn’t much, is that the Relative Strength Index (RSI) hasn’t fallen into oversold territory yet.

    McClellan, in his article, explains why differences between the charts of the euro gold price and dollar gold price are important:

    The chart above shows gold priced in both dollar terms and in euros. They are obviously similar, which is what we would expect. But when there are differences, then those differences can be instructive. I have found that when the two plots disagree, it is usually the euro price plot that ends up being right about where both are headed.

    The euro gold price has some important chart contrasts versus the dollar gold price

    The euro gold price stands in contrast to the dollar gold price. The euro price of gold has crossed the price trigger drawn from the Andrews’ Pitchfork. The euro gold price also remains within the Keltner Channels versus the dollar gold price which has fallen beneath the channels.

    A few of the significant features of the euro gold price chart are:

  • An upward sloping price support line that, for the moment, appears to be holding;
  • The euro gold price has crossed the price trigger line. This often signals a price move higher, although the euro gold price has somewhat stagnated since crossing the price trigger line;
  • The euro gold price, in contrast to the dollar gold price, has remained within the Keltner Channels. Often this is indicative of sideways price movement;
  • MACD is showing a bearish crossover, but it is not yet as pronounced as the bearish MACD crossover for the dollar gold price
  • If McClellan is correct about divergence between euro gold price versus the dollar gold price, then the recent move of the euro gold price above the price trigger line could be significant. Another important divergence is the fact that the euro gold price exited the Andrews’ Pitchfork and has continued to move away from it. In contrast, the dollar gold price exited the pitchfork, then showed weakness as the price fell back towards the pitchfork. A final divergence worth keeping an eye on is RSI. The euro gold price RSI has been much more “middle of the road” lately while the dollar gold price RSI is edging closer to oversold territory.

    When looking at price charts, make it a practice to look at them priced in different currencies. You may just see some important patterns you had not noticed before.

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