A battle between gold bulls and bears is taking place just below year highs and the upcoming Jackson Hole Symposium could be the catalyst for a big move.

Record futures demand & ETF outflows

Last month we witnessed record demand for gold futures. Of course, the sabre rattling between the US and North Korea was a key driver behind this, but dig a little deeper and a curious dichotomy is apparent. That’s because, in the same month, we also saw significant outflows in gold-backed ETF’s.

The difference between gold futures and gold-backed EFT demand can be explained by hedge funds and market speculators favoring futures and longer-term funds and retail investors favoring ETF’s. Nevertheless, as the below chart indicates, gold is clearly setting up for a big move.

(Click on image to enlarge)

Gold Daily Candle Chart

Prices trapped below resistance

Before focusing on this week’s price action, let’s set the scene a little. Firstly, we highlight that a resistance zone around the 1,295 mark has formed overhead - this coincides with the April and June swing-highs. Gold prices faltering at this zone on 11th Aug and breaking to 1,300 only to roll over and close at 1,284 on the 18th Aug, a clear false break of resistance, further reinforces the significance of this zone.

However, with gold locked in a well-established uptrend since July, we now find prices trapped between a resistance zone overhead and a well-established medium-term trend line. Given this, the intense price compression witnessed over the past few sessions should make investors sit up and take note.

‘Double inside day’

As the chart highlights, this week sees gold prices coiling within a series of ever tightening trading ranges. Both yesterday’s and Tuesday’s trading ranges were fully engulfed by the previous days' candle, forming a ‘double inside day’ pattern form. In fact, were we to see prices close at their current level, this would see a triple inside day pattern form!

Price compression patterns like this are very rare and indicate that a bout of powerful range expansion is to come.

Wait for breakout confirmation

For us to move long we would need a decisive break and hold above 1,295. A break and hold above a well-established resistance zone would offer a sure sign of bullish momentum and in this instance, we would have short-term momentum aligned with the July/August uptrend. Moreover, with Yellen speaking at the Jackson Hole Symposium tomorrow, a potential catalyst for investors to flow into safe heaven assets such as gold is just around the corner.