In our 14 February report: Do We Love Gold? We alerted our readers to the fact that the gold price had made an unsustained break of its 2021 downward trendline. In the two weeks since then, the uncertainty in world markets created by the threat of war, has seen the price push through resistance around US$1920 and make an attempt at $1960 barrier with the rise to $1972.50 on 24 February. The entire action from the January low point at $1778 has been steep but not uncharacteristic for the gold price movements. However, on Friday 25 February, the price for gold slumped back beneath the $1900 level to leave us with the concern that there may be a bull trap in play. At this stage, the odds seem against such a phenomenon with a more likely outcome that the gold price experiences more volatility in the $1845 to $1920 range with outliers possible to $1970 and $1833 with these acting as trigger levels for the next direction.
As the indications hold for the upward path to resume the price retains the ability to continue into the peak zone between $2060 to $2100 with the potential for significantly higher prices. Traders and investors alike should be vigilant and pay attention to support, resistance and trigger levels as the global tensions and uncertainty continue to influence and impact world markets.
With this scenario in mind, we have selected a Western Australian gold miner and mineral explorer to be placed on a watch list. Tulla Resources (ASX: TUL $0.61) has a 50% interest in an historical gold mine located near the town of Norseman in the Goldfields of Western Australia. The mine has produced in excess of 5.5Moz of gold since operations began in 1935. Usually, the price for Tulla closely follows the gold price but it is important to note that it did not move in tandem with the gold price from 24 February with its share price still contained within its broad potential base and equally important will be the effect of the gold price drop on 25 February on Monday 28 February’s trading day for Tulla and the rest of the gold mining community.
What appears to be a broad base has been developing from March 2021 when the price dropped from a high point at 69c to follow a downward path to locate a pivotal low at 38.5c in October 2021. From here the price rallied strongly to reach the barrier zone around 60c. Divergent momentum combined with the resistance produced a downturn and subsequent formation of the second part of the base.
The price surged through the 60c area on 21 January this year but halted at 68.5c in the resistance created by the previous high. The price dropped back to seek support within the base just above 50c to resume its churning higher to retackle the 60c barrier zone. The price has been trapped within the zone over the last week and needs to break clearly through 70c to suggest that the base is completed. When this occurs, the price would gain the upward potential towards 85c and 95c and possibly higher.
The risk until the phase is completed would be more churning around the 60c area barrier with support in the 55-57 range with a drop below signalling that a breakaway would be delayed or even negated with lower levels of support in the 44-50c range.