Stocks

Gold Seeing Record Breaking Volume

Up to this point in 2017, gold has maintained its target of $1485 – $1535 per ounce. These numbers are used for the target through a measurement of three technical levels within this $50 quantity. If you aren’t aware, these three levels mentioned are:

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  1. December 2015 through August 2017 volume consolidated at $330 per ounce, at the low end of $1045 and the high end of $1375. This is represented in the triangle on the charts below. When this triangle-consolidation breaks, technical analysis derives the target to be an equal measurement of the volume, $330, added to the apex, $1205.
  2. Horizontal resistance is clearly seen with the black line on the long-term gold chart at $1525. This resistance acted as support three separate times between 2011 and 2013, but did not succeed on the fourth try in the beginning of 2013. We usually see formerly high support levels later act as resistance in the intermediate-term on the later attempt to overcome them, because purchasers of gold at the higher levels tend to exit the market once they break even.
  3. The decline of gold between 2011 and 2015 through the 50% Fibonacci retracement level ends up at $1485. Fibonacci levels can be described as a pattern found in nature: on seashells, in hurricanes, in the spiral of a galaxy, via the Fibonacci sequence. This type of pattern can be found in financial markets as well, as these markets are a component of human nature.

Overall, this union of resistance levels in a tight range represents a high probability zone for the upcoming target. This level for gold is between $1485 and $1535.

High Volume as a Clue

It is obvious that gold is increasing for the short term and has broken out of the 2011 to 2017 downtrend. Additionally, trading volume is increasing so much that the quarter that closed on September 30 showed the highest quarterly volume of gold contracts ever traded.

Gold Breaking Volume

It is also possible to see that the volume is continuing to increase even though prices are staying at 2013 levels or lower. This is an example of what technical analysts often state, that “volume precedes price movement”. The current spikes are occurring during the final stage of a 5-year basing process (overall flat prices since 2013).

As this base grows closer to its ending stages, these spikes show an acceleration in the transfer from weak hands to strong of gold.

Explaining Gold's Base

The base question about gold’s target is the timing of it. To determine this, we evaluate the development of the shape of the continuing 5-year basing pattern:

Gold Breaking Volume

As seen in this chart, the 5-year basing pattern of gold fits the mold of an early period parabolic growth, creating a cup profile that can be seen in blue on the chart above. On Friday, October 6th, the low range of this curve was tested with the price of gold down at $1262. A look at the blue-callout shows the location of the test of this curve.

Should gold hold to this parabolic base pattern, evidenced through green arrows on the graph, for the rest of 2017, the $1485 - $1535 may be reached sooner rather than later, possibly by the second quarter of 2018. While casual investors of the metals market may not see this probability because prices have not broken that high since the beginning of 2013, this early-stage, unbroken curve argues that it is very likely.

On the other hand, should gold fail to hold to this base, evidenced through red arrows on the graph, the target of $1485 - $1535 is not affected. Instead, it would be the timing that would be affected, pushing it to the end of 2018 or even into the first quarter of 2019. In this case, more consolidation would have to happen between the current low of $1262 and the high reached in 2016 of $1378 before gold can advance forward.

Conclusion

The gold market is seeing record-breaking volume. This is within a five year period that has seen prices moving sideways as a net total. The takeaway today is that the market is gaining interest and moving towards the ending stages of its basing process.

More clues will be given through the rest of the price actions of 2017 to show how soon it will be until the stated target zone will be reached. If the parabolic curve is continued then the target will be hit more quickly, but should it break then we are looking at a longer period of time.

Whatever the rest of 2017 brings, now is the time to keep your eye on gold.


Article by Christopher Aaron, Bullion Exchanges Market Analyst

Christopher Aaron has been trading in the commodity and financial markets since the early 2000’s. He began his career as an intelligence analyst for the Central Intelligence Agency, where he specialized in the creation and interpretation of pattern-of-life mapping in Afghanistan and Iraq.

Technical analysis shares many similarities with mapping: both are based on the observations of repeating and embedded patterns in human nature.

His strategy of blending behavioral and technical analysis has helped him and his clients to identify both long-term market cycles and short-term opportunities for profit.