Gold: bearish divergence is going against the gold bulls

Gold is one of the most sought-after assets during a recession. This is especially true when inflation threatens to get out of control, as gold is seen as an inflation hedge. In addition, it tends to outperform equities in environments where inflation is higher than usual.

So far, inflation has not accelerated consistently in developed countries. Naturally, this raises the question: what the hell is the price of gold doing at $1,802?

Some important things to consider

To begin with, any technical analyst won't miss the upward wedge formation seen on the above chart. Specifically, when the market continues to form higher highs and lows, it is a sign of an uptrend. However, if these peaks are only marginal, a rising wedge scenario should not be ruled out. A break below the lower edge of the pattern confirms the trend reversal.

In addition, other interesting signals have emerged when interpreting the current price action in the gold market with correlated markets. While the upward trend in the gold price is evident, the higher highs it is reaching are not confirmed by the Japanese yen, silver, or mining stocks. For anyone interested in the gold market, this is troubling.

When looking at the price of gold, it is important to remember which other asset/currency it refers to. If it's the USD, the USD component of the equation plays an equally important role.

That being said, the USD tends to strengthen in the run-up to or during recessions. There is growing evidence that the recession due to the virus situation will not go away as quickly as we would imagine - will the USD strengthen as the recession stretches out?

Overall, the signals from the gold market are mixed. This is all the more worrisome as we enter the slower summer trading phase, with many traders selling off their interests until September. As liquidity is depleted, even small market movements can be amplified by a lack of participants.

There is an old Chinese proverb that says "

he who has the gold makes the rules

". However, asset prices do not move in a straight line, but they do correct themselves from time to time. It is an investor's job to find these moments and profit from them.