Gold Price Forecast: Tight Range Hints at Upcoming Volatility Surge

Bruce Powers
Published: Jul 2, 2024, 20:46 GMT+00:00

Gold's recent sideways action and contracting volatility within a symmetrical triangle pattern suggest an impending breakout, either bullish or bearish.

In this article:

Additional sideways price action dominated gold trading on Tuesday, as it has for the past several days. Gold has been trading within a relatively tight range with a low of 2,318 and a high of 2,340. Today, it is on track to complete an inside day as trading has occurred within the price range of Monday. Those three days are contained within a larger seven-day sideways price range with the same high price but a lower low of 2,294.

A tightening price range is representative of contracting volatility, which can also be seen with the two moving averages on the chart as they have converged recently. The purple 20-Day MA and the orange 50-Day MA have been tracking close to each other since the shorter 20-Day crossed below the 50-Day MA on June 17.

A graph of stock market Description automatically generated with medium confidence

Tightening Range Designs Symmetrical Triangle

In addition, a symmetrical triangle pattern has been added to the chart (dark blue). It is also a good representation of contracting volatility. If gold stays within the boundaries of the triangle, consolidation will continue. But once a breakout either up or town triggers, volatility should expand. What follows a period of contracting volatility is typically a clear pickup in momentum.

Multiple Tests of Resistance

For each of the past few days, resistance was retested around the 50-Day line and price was rejected to the downside each time. In addition, a top rising trend channel line was also successfully tested as resistance as it has converged with the 50-Day line. Further, recent price action has also recognized resistance around the downtrend line. In summary, there are two trendlines and two moving averages that identify resistance near the highs of the past seven trading days.

Since gold is in a downtrend price structure, seeing resistance at lines that used to represent support is bearish and supportive of an eventual continuation lower for gold. However, a signal is needed as a bullish reversal remains a possibility as well. Sometimes, when a chart pattern seems clear, but momentum and volatility have contracted, a swing in the alternate direction occurs. Nevertheless, it is best to be prepared for either a continuation lower or a bullish reversal and higher prices.

Breakout – Up or Down?

A breakdown is indicated on a drop below the lower triangle line and then more clearly on a drop below the recent swing low at 2,294. There are then a couple interim price targets, but the primary downside target is 2,211 to 2,195. Meanwhile, bullish momentum should accelerate following a rise above 2,340 and more so on a move above last week’s high of 2,369.

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About the Author

Bruce boasts over 20 years in financial markets, holding senior roles such as Head of Trading Strategy at Relentless 13 Capital and Corporate Advisor at Chronos Futures. A CMT® charter holder and MBA in Finance, he's a renowned analyst and media figure, appearing on 150+ TV business shows.

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