Gold is trading in a decision zone - gyrating around previous lows. A pick up in volatility is pointing to big moves to come, but the $64 billion question is which way?

The fundamental case in gold is less straightforward than a few months ago. Then, subdued inflation and the impending end of QE3 saw gold under significant pressure. However, potential increased stimulus from the Bank of Japan and the European Central Bank muddy the waters somewhat. Any increase in concerns could also see gold's "safe haven" status attracting support.

Recent market moves are reflecting these conflicting themes:

20141203 au

Gold struck lows just above $1180 (green line) twice in 2013, and again in September this year. In the last three weeks, the price has tested and re-tested this level a number of times (circled). Its very unlikely gold will stay at this level. The red line at the bottom of the chart is 20 day historical volatility. Note the way it has spiked, lifting from below 10% to approach 27% - a huge change in price behaviour.

Theories of "volatility clustering" suggest volatility will remain elevated for now. This fits with the idea that the gold market as a whole is  coming to a decision. The lines in the sand are now at $1221 and $1132. Breaks above or below these points could set the direction for the medium term.