Why Gold May Be Headed South

Above is a daily chart of  the gold stocks index (XAU) and in the lower panel is the ETF for gold (GLD). These two markets tend to trend together and are positively correlated.  Over the past year you can see that both markets made lows and highs at the same time in perfect harmony until now.

You'll notice that gold made a new swing high last week but the gold stocks index did not. This sets up what is known as a bearish divergence or non-confirmation. The gold stocks index did not make a new high with gold which in my opinion is a warning sign that the gold market and the gold stocks are about to sell off.

The way to trade this might be to short GDX or GDXJ which are two ETFs that track the movement of gold stocks. Today gold stocks were one of the weakest groups with GDXJ closing down over 5%.