Where Next For Gold?

Gold dialy chartThe daily gold chart is one which makes interesting reading, and the question now all investors want an answer to is this – are we seeing a top build, or is there consolidation ahead of further gains? Much of course will depend on the ultimate direction for the US dollar, and with a packed week ahead for FED chair Powell, we will almost certainly see further volatility as already experienced over the last couple of weeks.

So putting the US dollar to one side for a moment, what is the technical picture?

Starting with the price action itself, we certainly have several signs of weakness, with the two shooting star candles of three weeks ago and again last week, identical in both construction and size and both topping out at the $1440 per ounce area. However, note the volume associated, with one on high volume and the second on average volume. It is certainly true to say the price action of 3rd July would have been influenced by trading volumes ahead of the 4th July, so we can attribute some of this effect to the holiday. Nevertheless, the volume associated with the second shooting star is less than in the first example, suggesting perhaps selling pressure is weakening somewhat. It was also interesting to note in the first reversal in late June, selling volume was falling with a falling market and therefore suggesting weakness in the move lower.

Friday’s price action was also significant, once again characterized with some strong selling intraday on high volume, but which closed well off the lows of the session as denoted with the deep wick to the lower body of the candle, bullish sentiment which has followed through into early trading albeit weakly.

Gold weekly chartAt this point it is perhaps prudent to step down to the weekly chart for further insights, given the complexity of the daily chart, and this too confirms the technical weakness with deep wicked candles on high volume with resistance in the $1407 per ounce level now coming into play. However, note the light volumes ahead on the volume histogram to the right of the chart which will present little in the way of an obstacle to a sustained move higher in due course should this level be breached.

So what to expect from gold over the next few weeks? First, from the weakness now baked into both the daily and the weekly charts, gold is likely to weaken in the short term, and possibly retest the volume point of control or above in the $1380 – $1390 per ounce area and perhaps lower. This fact is also confirmed by the monthly chart which perhaps delivers the clearest signals of all given the volatility candle which was triggered in June, an unusual occurrence. Regular readers of this blog will know this signals congestion confined to the spread of the candle which is now developing and likely to do so for some time. The only glimmer of hope is the strong support platform at $1400 per ounce which is likely to be tested shortly. What is also worrying is the $1440 per ounce highs of last month price areas which have seen strong reversals in the past, and likely to occur once more.