As summer transitions into autumn, there seems to be little change in the sentiment for gold, which continues to remain range-bound on the daily chart, still transfixed within the Brexit candle of late June. Indeed, the price action since then has been mesmeric and symmetrical, with each attempt to rally duly failing and sliding lower. And setting aside the issue of the Fed for a moment, what can we conclude from the technical and fundamental picture for the precious metal?
If perhaps we begin with the fundamental picture, global economies continue to struggle as the currency wars show little sign of abating, with key players now all eyeing negative interest rates (NIRP) with increasing regularity. Last week it was the BOE and the ECB, this week it is the BOJ, with only the Aussie and the kiwi economies having any wiggle room remaining. With inflation now a dim and distant memory—and with deflation the defacto standard—the prospects for gold remain dim with any inflationary price driver unlikely to materialize for some considerable time. Last week’s CFTC data saw managed net longs reduce their positions from 278,994 to 248,858 with an increase in open interest of 31% and reflecting the increasingly bearish sentiment now prevailing.
From a technical perspective, we now have several key levels likely to come into play over the next few days. To the upside, the most well developed of these is at the $1360 per ounce area which has been tested on many occasions, most recently two weeks ago. This is defined with the red dashed line of the accumulation and distribution indicator, and confirms an area of strong distribution.
Immediately below, we have the volume point of control itself which sits in the $1345 per ounce area, and around which the current longer term congestion is now focused. Volumes here are building ever more strongly, thereby confirming the significance of this region, with corresponding low volume nodes both above and below. To the downside, the key level is now firmly in place in the $1304 per ounce region and developing a strong platform of potential support. This area was duly tested in late August but held firm, and, is now the one to watch. However, if this is breached, there is little in the way of strong support offered below, with the potential pause point at the low of the Brexit candle in the $1260 per ounce area.
Indicative of the general malaise for gold are the associated trading volumes. Even the last two weeks of downwards price action have failed to materialize into any substantial selling or participation, with only a drift lower on average to low volume.
Wednesday should inject some much needed momentum, and may provide the catalyst for a breakout from the longer term congestion and corridor of price action now defined. Volume as always will be key, and if the big operators do move in mid week, this may then set the trend for gold prices longer term.
For investors and longer term traders, patience is the key here, with any breakout from the $1300 to $1380 per ounce area potentially seeing the start of a trend develop. As always it is a question of time – the longer the market remains range-bound, the stronger the trend once it begins, as all eyes now focus on the Fed and the US dollar.