Analyzing Gold’s Direction: Volatility Contraction and Upcoming Breakout

Gold Forecast Video for 25.09.23 by Bruce Powers

There was no downside follow-through today to gold’s decisive drop yesterday. Instead, it traded inside day today with a high 1,929, which successfully tested the 55-Day EMA as resistance. This reflects some uncertainty as to whether gold is going to continue to sell off or hold steady and eventually break out higher.

Volatility Declining

Overall, volatility has been declining the past month as gold further prepares for its next move. Price has been coiling and tracing out a symmetrical triangle type formation. Although not drawn on the chart you can see how the recent swing high is lower than the prior swing high, and the most recent swing low is higher than the prior swing low. Further, there are also two spots where trendlines converge, showing another way to see contracting volatility.

Price Expansion Follows Low Volatility

Sustained trending moves, even if for a short time, usually follow periods of lower volatility. Gold failed in its attempt to break through the downtrend line on Wednesday. Might it be successful on the next attempt? One of the trendlines is going to be busted prior to the first crossover on October 3. We don’t know which way gold will break at this point. Nevertheless, whichever line it crosses and closes over will point in the direction. This means that volatility could start to pick up next week as one of the lines will likely be busted by then.

Moreover, let’s keep an eye on the relative strength index (RSI) as it has traced out a symmetrical triangle reflecting contracting volatility. A breakout above the top line will further confirm an upside breakout of price, while a downside decline confirms a downside move in price.

Gold to End with Weekly Bearish Candle

On the weekly chart gold is set to close weak, in the lower third of the week’s range, thereby setting up a bearish inverted hammer candlestick pattern. However, it doesn’t trigger unless there is a decline below this week’s low of 1,914. If it happens, then it could take gold a while longer before it is done with the correction and it is ready to proceed higher.

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