The daily gold chart for August gold futures, neatly summarizes the curious confluence of market forces which have been thrown seriously out of kilter recently and shows little sign of regaining any balance. As I explained in my recently published book on forex trading, the rule book for both traders and investors has been torn up, largely as a result of the QE programme as no one can be sure, either of its impact, or any longer term effect. In other words the bonds markets are so distorted and bloated, virtually all of the once traditional inter market relationships have broken down, and none more so than with gold. After all, a weak dollar should result in higher commodity prices and this is certainly not the case at present.
From a technical perspective, the daily gold chart continues to trade in a narrow range, and whilst gold has attempted to break above the $1400 price area and beyond, each attempt in the last few days has failed at the $1420 price point. The floor of support remains firmly in place at the $1360 price region, whilst to the upside, secondary resistance is now in place in the $1420 per ounce area. If this resistance is broken then we could see a test of the $1440 area where deeper congestion awaits. The good news for gold bugs is that on the volume at price histogram there is a sustained area of price support which extends from $1350 to $1370 which is in addition to a further region of support at $1400.
In conclusion it really is a question of patience, and if the gold market does eventually break lower, then we could see a significant move triggered as a result. As always, volume will give us the advance warning, but at present there are few clues yet as to the likely direction. The only thing we can say with confidence is that with no evidence of a buying climax, the probability is for a move lower in the longer term.
By Anna Coulling