Once again it was the volume point of control coupled with strong price resistance at $1800 which brought the latest rally for gold to a shuddering halt on Friday with the metal closing last week at $1768.30 per ounce after a largely positive five days. In addition, the precious metal did close higher overall on the week but with much of the expected gloss removed and it is the daily timeframe that continues to dominate from a technical perspective in terms of both volume and price.
If we consider volume-based resistance this is most clearly evidenced on the VPOC itself as denoted with the yellow dashed line. The vpoc or volume point of control on the chart is where price agreement has been reached and also confirms the heaviest concentration of volume on the histogram, and so, as has occurred, we can expect the price action to move into congestion and struggle. Moreover, and immediately above this level is also a strong area of price based resistance as denoted with the red dashed line, so when we combine these two factors which act in concert it is no surprise that we saw gold struggle on Thursday at this level before capitulating on Friday, a move which also took out potential support as denoted with the blue dashed line in the $1780 region.
As I highlighted last week, there are two major issues on this chart. First is the VPOC which has already come to bear, and the second is the strong resistance level at $1840 per ounce. However, given the current inflation picture at present, I continue to remain bullish on gold but expect the price action to follow the current pattern if and until the $1840 per ounce level is breached. Then and only then can we expect to see the price of gold move firmly higher and develop a trend away from the current congestion which has been in place since the summer months. So no move away just yet from this range between $1720 per ounce and $1840 per ounce.
By Anna Coulling
Charts from Ninja Trader and indicators from Quantum Trading
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