Gold has just broken a new all-time quarterly record for volume – again. With Q1 2018 in the record books, we can see below that gold has just exceeded its previous record volume. This volume was in Q4 2017. The new top figure comes in at just over 19.2M contracts exchanged for the period. A figure shattering the previous record at 17.9M.

Gold chart

More importantly, gold has now set new quarterly volume records for five straight quarters. Someone has an interest in gold over the past 15 months.

Volume is Price Neutral

We remind readers that volume indicators are price neutral. Context is vital in evaluating the amount. For example, take when a record high volume spike is seen on a reversal day either higher or lower in price. This tends to emphasize the legitimacy of the reversal. Conversely, if a low volume is on a breakout in price, this tends to place a question mark on the sustainability of the pending advance.

In this case, we see a repeat record volume at the end of a nearly 6-year period in which prices have been flat as a net sum. There is a tremendous amount of positioning now happening in the gold market. Whichever direction this market breaks, we take this to indicate the impending move will last for several years in a sustained manner.

The key is going to be to observe the direction of gold’s more significant move. Is it a breakout or a breakdown coming?

Gold Short-Term

For the week in sum, gold rose $9 (0.7%) to close at $1,336. This is as of the final trade on the New York COMEX futures market Friday afternoon.

Given the negative breakdown observed in silver, we must realistically prepare for a final move lower in gold. It is likely into the green support zone over the near term. The red arrows indicate this. Note what is a clear pattern of rising support levels from 2015 through the present. This decline could be a grinding affair. It might not offer the type of $200 decline from late-2016 when gold-backed off from this region:

Gold chart

Should gold indeed break its support zone near $1,303 within the next few weeks, the measured target will be $1,241. This target is derived from the amplitude of the preceding consolidation. ($1,365 – $1,303 = $62 amplitude). Then subtracted from the breakdown point of $1,303.

Such a target would still be within the accepted definition of gold’s green support zone. Look above its 2015 – 2018 rising support. (blue). The boundary of the growing support line now comes in at $1,230.

Still, the target at $1,241 would come dangerously close to gold’s December 2017 bottom at $1,236. This is close enough for us to say this warning. It is of critical importance that gold maintains a higher print above this December 2017 level on any retracement. A move below $1,236 would call into question the strength of remaining buyers. Additionally, it will indicate the likelihood that gold would proceed to break its 2015 – 2018 rising support. This is en route to a multi-year declining market.

Investment Implications for Gold

Suffice it to say, gold might follow silver lower at this juncture. It must remain above $1,236 at an absolute worst for the bullish thesis to stay alive.

Any bottom higher than $1,236 keeps the door open to an advance above 2016 highs for both metals later this year. This is especially if it should coincide with relative strength shown in the gold mining complex,

We have negative signals showing over the short run. This is especially in silver. However, it will be important not to jump to extreme conclusions until key support levels are either confirmed or violated. To do so otherwise would be premature. That would lead one to make irrational moves at the most critical juncture.

Christopher Aaron
Bullion Exchanges Market Analyst

Christopher Aaron has been trading in the commodity and financial markets since the early 2000s. He began his career as an intelligence analyst for the Central Intelligence Agency. This is where he specialized in the creation and interpretation of pattern-of-life mapping in Afghanistan and Iraq. His strategy of blending behavioral and technical analysis has helped him and his clients. It helps to identify both long-term market cycles and short-term opportunities for profit.

This article is a third-party analysis. It does not necessarily match the views of Bullion Exchanges. Readers should not consider it as financial advice in any way.

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