There has been a range of intelligent analytical opinions recently espoused, seeking to explain the action in the gold price this last six months. Whilst we have found articulations focused on consolidation most conducive, quality analysis has not just been found this side of the debate. Outside of lazy assertions that the gold bubble has burst, the debate has been heated but useful. It is always as such for gold. In the office we call the gold market the fox-hunting debate of the financial markets; very few participate but many have strong and at times heated opinions on the matter.
A quick and useful piece on recent price action in the precious metals was recently published by Jordan Roy Byrne at The Daily Gold. Mr Roy Byrne sees gold and silver as “correcting multi-year advances”, noting that these corrections are now evolving into more extended consolidations. A decline in volatility along with general interest and sentiment in the market are deemed important to put a ‘bottom’ in in the precious metal prices. During an extended consolidation we are advised that these bottoms take time to develop.
Consolidation in the gold price
Mr Roy Byrne starts by looking at the gold price, and he finds price and market behaviour befitting a consolidation:
"Let’s start with gold. At the top we plot the average true range (ATR) indicator which is a helpful volatility indicator of sorts. When it becomes stretched or rises too high on the chart, we can expect a reversal in trend. Note that the ATR indicator often hits a low prior to or soon after the start of an impulsive advance. This occurred with every major move with the exception being 2008 when volatility peaked during the financial crisis which sent gold down 30%. Also, the yellow shows what was an uncorrected two year advance from $900 to $1900. This 25-month advance has been followed by an 8-month correction."
Using Fibonacci retracements and technical analysis Mr Roy Byrne sees the gold price continuing to correct for a few months more. So perhaps gold is set to slip quietly into its oft-cited
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