Gold Price Forecast – Reversals, Volume And Gold

There are indicators, and there is price action. Some technicians swear by one or the other, yet it’s most sensible to combine both views as they go hand in hand. Further, there is a special breed of indicators that are not a derivative of price, and the chief among them is volume.

You see, volume expresses the conviction behind a certain move. Price changes are one thing, but volume levels are another. Discussing reversals, we want to see it confirmed by volume to call it one. How does it relate to gold now?

Last week’s gold futures volume was the highest one ever recorded. And we saw it while gold plunged. That’s yet another very strong confirmation of the bearish outlook for gold for the following months.

Monthly price changes tell the same story.

Gold reversed in February, creating a crystal-clear shooting star candlestick. The monthly volume was big, meaning that this candlestick formation is valid. The shooting star is a bearish sign for the following weeks and/or months, especially that in 5 out of 5 previous times that we saw it, such moves lower followed.

The most interesting thing is that two of those five cases formed in 2008, which is yet another link between 2008 and 2020. One of the biggest and sharpest declines in the precious metals sector started with the formation that we just saw. The implications are very bearish – it seems that gold has already formed its final reversal for this medium-term rally.

Summary

The monthly chart sends a powerful message of gold’s reversal that is confirmed by the volume. As 5 out of 5 previous cases resulted in declines, it carries a strongly bearish message for the current outlook as well.

The following months are not likely to be pleasant times for anyone who refuses to jump on the bullish bandwagon just because prices moved higher in the previous months. But what’s profitable is rarely the thing that feels good initially. As silver often moves in close relation to the king of metals, forecasting gold’s rally without a bigger decline first is thus likely to be misleading. The times when gold is trading well above the 2011 highs will come, but they are unlikely to be seen without being preceded by a sharp drop first.

Naturally, the above is up-to-date at the moment of publishing and the situation may – and is likely to – change in the future. If you’d like to receive follow-ups to the above analysis, we invite you to sign up to our gold newsletter. You’ll receive our articles for free and if you don’t like them, you can unsubscribe in just a few seconds. Sign up today.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits - Effective Investments through Diligence and Care

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