Despite the recent minor pullback in the price of gold, which has seen the precious metal retest the $1380 per ounce price point in the past few days, the medium term outlook remains firmly bullish, driven by the fundamental factors outlined in my last post.
From a technical perspective we are now entering a phase of sideways price congestion which ranges between $1378 per ounce to the downside and $1420 per ounce to the upside, where the precious metal has been trading for the last week or so. The upper resistance level of $1420 is now extremely important as evidenced on the volume at price histogram where we have a deep area of price congestion between $1360 and $1390, and it is this area that now holds the key.
For any continuation in the short term bullish moment we need to see a clear move beyond this area, and this will then provide a strong platform of support which will then see gold break free from the current price ranges and move back to re-test the $1480 per ounce region, last seen back in late April and early May.
The current area of price congestion reflects a similar phase seen in late May through to June which ultimately saw gold break to the downside. Here we can see the initial break out bar was supported by high volume, confirming the bearish momentum.
In contrast we should expect to see a similar breakout, this time to the upside and once again volume will hold the key, and provided any move away is associated with high or ultra high volume this will validate the move for gold traders and confirm a true breakout.
By Anna Coulling