For longer-term gold investors now is not the time to panic and sell, and may even be an opportunity to buy on the current reversal for the longer term. But as always it is volume which reveals the true picture, so let’s start here with the daily chart.
And whilst the wide spread down candle of the 11th August was dramatic and wonderful trading for speculative traders, the extent of the wick to the lower body coupled with the extreme volume also signalled a degree of buying on this sharp reversal, which was confirmed the following day, with the deep wicked candle on very high volume, and sending a clear signal of sustained buying by the big operators on the 12th August. This buying was duly confirmed on the 13th August with a wide spread up candle on good volume. Friday’s price action was also significant with the fall in volume on a narrow spread down candle confirming the lack of sellers in the market. This candle is also important for another reason as it is in an area that only days earlier had witnessed heavy selling thereby confirming the bullish picture now developing.
The other important signal on the daily chart for gold was the appearance of the volatility trigger confirming price had moved out of the average true range for this timeframe. It is an unusual occurrence on the slower timeframes and therefore hugely important, signalling as it does, either congestion or a reversal to follow. And put simply, the slower the timeframe the great the significance of the signal.
Moving to the weekly chart once again the buying is self-evident here with the deep wicked candle on high volume telling its own story, and for those volume price analysis students, the prior week was a portent of weakness to come, and therefore no surprise of the correction which followed. The trend monitor remains blue, and with light volume ahead on the VPOC histogram expect to see bullish momentum re-established with a move to $2100 per ounce and higher in the medium term once the current volatility has subsided.
From a fundamental perspective, there are several drivers for gold at present, including the decline in the US dollar and the threat of inflation and the key release for gold will be the FED minutes on Wednesday. In other words, what policies and adjustments the FED is considering regarding its bond-buying program which is needed to pay for the record relief packages passed by Congress. And this is without the new stimulus bill which is still being thrashed out by legislators.
By Anna Coulling
Charts from NinjaTrader and indicators from Quantum Trading
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