On the daily gold chart we are at an interesting phase of price action. The weakness in the price of gold has been clearly evidenced since mid March, with each rally higher petering out. This was then followed by an extended phase of price congestion which saw the precious metal oscillate between $1315 per ounce to the upside and $1280 to the downside. The consequent breakout in late May from this price consolidation phase was dramatic and accompanied by 3 days of rising volume. However, what was particularly significant was the subsequent decline in volume as the metal approached the $1240 per ounce price point, suggesting that selling  pressure was waning fast.

As a result we expected to see a possible short term rally, which has indeed been the case, with the metal recovering from the platform of support at the $1240 per ounce region, to currently trade on the December future at $1265 per ounce.

However, yesterday’s price action was noteworthy given the ultra volume associated with a relatively narrow spread price move, which saw gold move from $1252.80 to close at $1260.90, only a modest gain. This in itself suggests further weakness to come and a rally that is lacking conviction. In addition, overhead we also now have an extremely strong and well defined region of price resistance in the $1280-$1300 area, as shown on the volume at price histogram on the left of the gold chart.

For any sustained recovery in the price of gold this is now the price barrier the precious metal needs to overcome. In the longer term the outlook for gold remains weak and any move through the $1240 price region is likely to trigger further falls pushing gold back towards the $1200 per ounce price point.

Equity only readers gain exposure to the gold through the SPDR Gold Shares Trust (GLD, quote) ETF that seeks to replicate the performance, net of expenses, of the price of gold bullion. The GLD trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets.  Readers can also access the gold market through the iShares COMEX Gold Trust (IAU, quote) ETF seeks to replicate, net of expenses, the day-to-day movement of the price of gold bullion.

Anna Coulling is a trader with over 16 years’ experience and founder of AnnaCoulling.com