For those of you who follow my regular market analysis will know that not only do I enjoy trading gold, I also enjoy writing it about. In my last post of the 4th October on gold, I suggested that the halycon days for gold were long gone, and more importantly that from a technical perspective, we were approaching a key level. That level has now been reached, and indeed I have used the same chart as before with the yellow dotted line defining this area.
This price area has now been tested, and we are at a critical point for gold, a tipping point if you like. It is the point at which any deeper move, could trigger a waterfall of selling, with the price of gold plunging lower as a result. Much of course depends on the fast approaching deadline in the US. The events now surrounding the financial markets are unique, and perhaps even bizarre. Who would have thought, even 6 months ago, that the US would be shut for business? Who would have dreamt that NFP could be delayed indefinitely? Who would have thought the impossible? Agreement will ofcourse be reached at the 11th hour, and the sun will shine on the markets once again. But will it shine on gold?
Well, where there is life there is hope, and what is perhaps strangest of all, is the lack of buying, given the economic backdrop, and yet the daily volumes tell their own story. Yesterday’s long legged doji candle is a small beacon of hope for gold bugs, which could signal a temporary pause and reversal from this key level. However, once again the volume associated with yesterday’s price action was average, and certainly does not indicate any serious buying at this level. The volume on preceding days has also be average or low, and based on volume price analysis, the conclusion here is simple. A temporary pause seems likely with a minor reversal higher, before the longer term downtrend continues.
As always, for any serious reversal in the current bearish trend, we need to see evidence of a buying climax, something we have yet to see in any time frame. The volume at price histogram tells its own story, with the deep area of price congestion now adding its own downwards pressure, dominated as it is by sellers in the $1300 per ounce region and above. In overnight trading on Globex, gold has struggled off the lows of last night, back to trade at 1279.60 per ounce at time of writing for the December futures contract.
Now we need to patient and wait for the fast approaching deadline in the US. It is decision time for the US and for gold. Monday could be an interesting start to the trading week.
By Anna Coulling