It was a game of two halves for gold last week, but one which has kept the bullish trend for gold in control, and as we start a new trading week, the precious metal has opened gapped up and confirming the current sentiment to trade at $1849 per ounce at the time of writing. So what of last week where the price action did indeed find the resistance at the $1840 per ounce level as I suggested it would in my most recent analysis?
Last week’s most striking days were Tuesday and Wednesday following Monday’s weak open which saw gold test the high volume area on the VPOC histogram at $1840 per ounce and is the reason this area is so important. As we can see in the above chart, above this price point volume falls away dramatically as we move on towards $1870 per ounce on the daily chart and as such we can expect prices to move through this region rapidly as there is little in the way of volume-based or even price based resistance to hinder progress, so good news for gold bugs.
But it was Tuesday and Wednesday which delivered the momentum for the move higher. On Tuesday, we can see the initial move lower was duly reversed on high volume signaling the buyers remain in control with a repeat on Wednesday with an anomaly in terms of volume price analysis. Why? Because if we compare the volume on the day with an equivalent down candle we should have seen a much wider range and this was not the case. This level of selling should have resulted in a widespread down candle of the equivalent size but it did not and so we can conclude there is sustained buying in the fall and hence we can expect to see the market recover and move higher which is what transpired on Thursday and Friday to close back near week’s open. Moreover, if we blend these five candles and imagine them on the weekly timeframe, what we have, is a narrow body candle with a deep wick to the lower body suggesting further upwards momentum to develop. Longer-term I expect to see gold continue through toward the $2,000 per ounce and beyond particularly if the current central bank inflation narrative moves away from one that is merely ‘transitory.’
By Anna Coulling
Charts from NinjaTrader and indicators from Quantum Trading
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