Last week was an interesting one for gold traders, with the precious metal once again trading in a narrow range ahead of the Thanksgiving holiday, before finally breaking out on Friday, and surging higher to propel gold up to test the $1750 per ounce level, in a classic breakout price pattern. As forecast in previous market analysis for gold, it was only a question of when, and not if, and as is often the case, the longer the period of sideways congestion continues, then the more volatile the break when it occurs. The move higher was given additional momentum by sustained weakness in the US dollar index, which has since reached a key level of price resistance, and now looks set to return to a congestion phase on the daily chart.
The move higher for gold was signaled in several ways, and not least with silver leading the way on this occasion, which had maintained bullish momentum, whilst gold moved sideways. The buying volume on the daily gold chart, also provided an additional clue with the buyers returning to the market early in the week. In addition, the trend had also started to rise, and with a bullish heatmap, all these signals combined to suggest a breakout to the upside. So where next for gold prices?
From a technical perspective, having broken above the sideways congestion in the $1720 to $1740 per ounce region, Friday’s price action has now created a strong platform of support for a sustained move higher. Yesterday’s price action was muted, with the market trading in a tight range to close marginally lower at $1749.60. However, with the US dollar now looking weak, the next technical level on the chart is the deep level of price congestion between the $1770 and $1800 per ounce region, and with rising bullish volumes on the daily chart, we should see a run back to test this level in due course.
For the trend to develop further, we need to see this positive sentiment reflected on the three day chart, where the longer term trend remains firmly bearish for the time being. In addition, we have yet to see the buyers return in this timescale, with volumes remaining negative or neutral. For a break beyond the $1800 per ounce price level, we need to see a transition in the three day trend, at least to congestion in white, which will then signal a move from bearish to bullish, and provided this is coupled with buying volumes, then this will provide the necessary momentum, and no doubt put a smile back on the face of gold bugs everywhere!
By Anna Coulling