For longer-term gold investors now is not the time to panic and sell. It may even be an opportunity to buy on the current reversal for the longer term. But as always it is volume that reveals the true picture, so let’s start here with the daily chart.
And while the wide spread down candle of Aug. 11 was dramatic and wonderful trading for speculative traders, the extent of the wick to the lower body coupled with the extreme volume also signalled a degree of buying on this sharp reversal. This was confirmed the following day, with the deep wicked candle on very high volume, sending a clear signal of sustained buying by the big operators on Aug. 12. This buying was duly confirmed on Aug. 13 with a wide spread up candle on good volume. Friday’s price action was also significant with the fall in volume on a narrow spread down candle confirming the lack of sellers in the market. This candle is also important for another reason as it is in an area that only days earlier had witnessed heavy selling, thereby, confirming the bullish picture now developing.
The other important signal on the daily chart for gold was the appearance of the volatility trigger confirming price had moved out of the average true range for this timeframe. It is an unusual occurrence on the slower timeframes and, therefore, hugely important, signalling as it does, either congestion or a reversal to follow. And put simply, the slower the timeframe the greater the significance of the signal.
Moving to the weekly chart, once again the buying is self-evident here with the deep wicked candle on high volume telling its own story. For those volume price analysis students, the prior week was a portent of weakness to come and, therefore, no surprise of the correction which followed. The trend monitor remains blue, and with light volume ahead on the VPOC histogram expect to see bullish momentum re-established with a move to $2,100 per ounce and higher in the medium term once the current volatility has subsided.
From a fundamental perspective, there are several drivers for gold at present, including the decline in the U.S. dollar and the threat of inflation and the key release for gold will be the Fed minutes on Wednesday. In other words, what policies and adjustments the Fed is considering regarding its bond-buying program, which is needed to pay for the record relief packages passed by Congress. And this is without the new stimulus bill, which is still being thrashed out by legislators.