December gold futures ended yesterday’s trading session at $1793 per ounce, having just failed to breach the psychological $1800 per ounce price level, and ending with a relatively wide spread up bar, which once again signaled an imminent breakout on the daily gold chart.
The price congestion over the last few weeks has now created a classic breakout patter, with the pivots defining the levels both to the upside and the downside. The price level below is in the $1760 per ounce region, whilst that above is in the $1780 area, and extremely tight range. What is particularly significant is the price action over the last week, with each daily bar displaying a higher low than its immediate neighbour, and this alone is a strong signal that we can expect to see a resumption of the bullish trend shortly. The reason for this is simple. If the gold market was bearish in the congestion area, then we would expect to see the market low of each day falling, and the reverse is in fact true, they are rising. This is a clear signal that gold is set for an explosive breakout from this region and a continuation of the bullish trend. In addition, and adding further weight to this analysis, is the current pattern on the daily chart, which is now a classic pennant, with rising prices below and a platform of resistance in place in the $1785 per ounce area. Yesterday’s price action has now closed marginally above this level, and we are now waiting for that clear break and hold which will signal the next leg up in the longer term bullish trend.
Moving to our trading indicators, this bullish picture is confirmed in both time-frames. Buying volumes on the daily chart remain high and also firmly green. This is the same on our three day chart, where the volumes have remained firmly bullish since late July and indeed that has been no selling volume whatsoever since then. In addition, both trends for the daily and the three day charts are firmly bullish, with the indicator also confirming the positive sentiment for gold. Finally our second trading indicator continues to deliver confirming signals of the bullish momentum, with the last of these arriving on Monday this week.
Once the price of gold clears the psychological $1800 per ounce level, then we can expect to see an extended run higher for the precious metal, with a retest of the $1934 per ounce high in due course. And from there, it’s a short hop towards the $2000 per ounce level which we can expect to see breached in Q1 of 2013.
By Anna Coulling