Spot Gold Chart 3 August 2009

Friday’s wide spread up bar on the daily gold chart came as a complete surprise and to be blunt was totally unexpected and impossible to predict as the technical picture was one of a bearish reversal following last Tuesday’s signal and the consequent deeper move below all three moving averages.  The driver for this sudden surge in gold prices was based on two broad factors: first continuing and chronic dollar weakness as traders and investors continue to regain their appetite for riskier assets and secondly, and as a consequence, equity markets continued to hold onto their recent gains.  However, before we all assume that this massive turnaround on the gold chart will see the spot gold price power back towards the $1000 price point within the next few trading sessions I would like to inject a cautionary note based on the gold futures volume recorded last Friday.  Having checked the volume figures, Friday’s widespread up bar on Comex, was achieved on less than 11k contracts, a fraction of the normal trading volume, and just to put this into context for you a typical trading day will volumes in excess of 100k and considerably higher.  Even allowing for the summer lull and a Friday this move was extraordinary and a complete anomaly when considered using volume spread analysis techniques.  In simple terms any wide spread candle, whether up or down, should be accompanied by equivalent volume if the move is to be considered genuine.  In this case the strong move higher has been achieved with virtually no volume, and therefore raises a red flag and should therefore be viewed with extreme caution as the market is clearly not buying into the move higher.  As a result we may well see a consequent reversal of equal proportion in the short term and any trading to the long side should be approached with great care.  From a technical perspective Friday’s high of the day at $958.10 per ounce pierced the resistance level in the $954 region and only a break and hold above here will confirm this somewhat suspect bull move.  Overall spot gold prices ended the day $19.13 up to settle at $953.70.   With the summer lull and such random moves in gold prices my trading suggestion to position traders is to step aside but more experienced “scalpers” will find plenty of opportunities in the current volatility.

Support:    $939.46        Resistance:  $954.35
Support:  $919.15        Resistance:  $938.74
Support: $904.26        Resistance:  $918.23

The short term is bullish, medium term sideways, long term bullish.