Home Daily Analysis Charts / Trade Ideas Silver and Gold – An example of Correlation and Divergence

Silver and Gold – An example of Correlation and Divergence

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In a previous post, we introduced two key concepts from the Elliott Wave Analysis, correlation and divergence. In this post, we’ll apply these two concepts between Silver and Gold.

Correlation

We can define the correlation as the level in which two or more assets shares a degree of relation. This degree can be strong, weak, or neutral, also can be negative or positive. In this case, we observe in the following chart, that the correlation between Silver and Gold is strong and positive. It means that both precious metals tend to move in the same direction.

Divergence

In the 30 minutes chart, we observe how in the first part of the move started on June 20, Silver and Gold converges. It means the two metals move bullish making higher highs and higher lows. Once Silver reached the top at $15.55 and Gold $1,411.99, both commodities started to retrace to $15.16 and $1,382.56. When the retrace finished, Gold reached a new higher high, hitting the $1.439.31 level, and Silver reached a higher low at $15.51.

Once Gold found a short-term top at $1,439.31, the price started to move sideways the same way as Silver. During this post redaction, Gold paid its divergence beginning with the Silver’s drop. When XAGUSD started to fall, XAUUSD followed the same direction to the $1,412 level. This zone coincides with the start of the divergence between Silver and Gold.

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