Where next for gold?

To answer that particular question for investors it’s appropriate to consider the weekly chart which helps to smooth out the extreme volatility of the last two months and give us a more meaningful analysis. Last week’s price action is a case in point when the precious metal opened above $1500 per ounce, rising initially before plunging, only to recover above this key psychological level by the end the week, with the weekly candle closing with an extreme wick to the lower body. And when combined with volume, signals strong buying on the week by the big operators given the height of the volume bar suggesting this is not a market which is ready to fall just yet. And this has been reflected in early trading this week, with gold continuing to hold above the $1500 psychological level.

Whilst one swallow does not make a summer, last week’s strong buying seems to have put a brake on the selling of August and September which has seen gold come off the highs of $1560 per ounce, and for these levels to be regained we will need to see a sustained follow through.

Moreover, as we can see on the volume point of control histogram to the right of the chart, the volume is building as gold congests in the region between $1500 and $1520 per ounce, whilst above in the$1540 per ounce we also have a low volume node. This is significant because if the precious metal can regain the $1540 per ounce area, once through, progress will be easier as there is less volume to act as resistance thereby allowing the metal to regain the $1560 recent high. This scenario is also supported by the trend monitor indicator which continues to maintain a bullish stance for gold on this timeframe.

Charts from NinjaTrader and indicators from Quantum Trading