Gold Projection Divergence

GOLD PROJECTION DIVERGENCE

Oscillator Companion for the Gold Macro Projection Model

OVERVIEW

The Gold Projection Divergence oscillator quantifies how far gold is trading from its projected fair value. While the main indicator shows where gold should be, this oscillator shows how extreme the mispricing is—providing precise timing signals for entries and exits.

HOW IT WORKS

The oscillator calculates the difference between actual gold price and the projected value, then normalizes it as a Z-score. This statistical measure shows how many standard deviations gold is trading away from its projected fair value.

• Z > +2 — Gold is 2+ standard deviations above fair value (extremely overvalued)
  
• Z > +1 — Gold is moderately overvalued
  
• Z = 0 — Gold is trading at projected fair value
  
• Z < -1 — Gold is moderately undervalued
  
• Z < -2 — Gold is 2+ standard deviations below fair value (extremely undervalued)
  

VISUAL ELEMENTS

• Histogram — Color-coded divergence magnitude
  
• Yellow Line — Smoothed Z-score
  
• Dashed Lines — +2 and -2 standard deviation levels
  
• Dotted Lines — +1 and -1 standard deviation levels
  
• Triangle Markers — Extreme crossover signals
  
• Circle Markers — Zero-line crossings
  

HISTOGRAM COLORS

• Dark Red — Z > +2 (extreme overvaluation)
  
• Orange — Z between +1 and +2
  
• Light Orange — Z between 0 and +1
  
• Light Green — Z between -1 and 0
  
• Green — Z between -2 and -1
  
• Lime — Z < -2 (extreme undervaluation)
  

COMPONENT TABLE

The breakdown table shows divergence from each individual factor:

• Silver — Is gold over/undervalued relative to silver?
  
• M2 — Is gold over/undervalued relative to money supply?
  
• DXY — Is gold over/undervalued relative to dollar strength?
  
• Equity — Is gold over/undervalued relative to stocks?
  
• TIPS — Is gold over/undervalued relative to real rates?
  

TRADING APPLICATIONS

Mean Reversion Strategy

• Enter LONG when Z < -2 and begins rising
  
• Enter SHORT when Z > +2 and begins falling
  
• Use zero-line crossings for trend confirmation
  

Trend Following Filter

• Only take long trades when Z < 0 (undervalued)
  
• Only take short trades when Z > 0 (overvalued)
  

Divergence Confirmation

• Bearish: Price makes new highs while Z-score makes lower highs
  
• Bullish: Price makes new lows while Z-score makes higher lows
  

ALERTS

• Extreme Undervaluation — Z crosses below -2
  
• Extreme Overvaluation — Z crosses above +2
  
• Moderate Undervaluation — Z crosses below -1
  
• Moderate Overvaluation — Z crosses above +1
  
• Divergence Turned Positive — Crossed above zero
  
• Divergence Turned Negative — Crossed below zero
  

COMBINED USAGE

For best results, use both indicators together:

• Main Indicator — Visual context of actual vs. projected on price chart
  
• Divergence Oscillator — Precise measurement for timing decisions
  

The main indicator shows where gold should be; the oscillator shows how extreme the mispricing is and when to act.

Disclaimer: This indicator is for educational purposes only. Past correlations do not guarantee future relationships. Market conditions can alter historical relationships. Always use proper risk management.