December gold futures traded in a very tight range once again yesterday, closing the session at $1743.80 per ounce, marginally above the open of the day at $1742 per ounce, and ending with a narrow spread up bar on the daily chart. This range bound price action for gold was typical of many other markets, which all drifted sideways throughout the session. So where is the price of gold heading next in the short term?
To answer this question we need to consider the price action for gold futures over the last few weeks, and in particular the sideways price congestion which occurred for much of September and into early October following the breakout from a similar phase in the summer. Following the breakout from the $1620 per ounce region, this gave gold a much needed platform of support for the next leg up in the bullish trend, and despite several attempt to breach the $1780 per ounce level, all of these subsequently failed. Indeed several of these were clearly defined with the pivots, drawing a clear line of resistance at this level, with the associated floor of this congestion in the $1755 per ounce area. As the trend dots flattened, the buying volume which had accompanied the move higher also started to fall towards the end of September and into early October, giving further signals that the bullish momentum was running out of steam.
The first signs of a change in trend occurred on the 5th October with selling volume appearing on the daily chart in red. Since then every volume bar has been either selling or no demand, confirming this change. In addition, Monday’s wide spread down bar this week finally breached the floor of this congested area, adding further pressure to the downside momentum, and with our trading indicator also turning from bullish to bearish, this has now confirmed the change in trend. To add further to the bearish picture, selling volume has also now appeared on the three day chart following yesterday’s price action, and the past piece of the jigsaw will fall into place once the three day trend transitions from bullish where it is as present, into no demand and finally through to bearish. Should this occur, then we can expect to see a deeper move lower for the price of gold in due course, possibly even to retest the strong support level now in place in the $1650 per ounce region.
By Anna Coulling