Gold markets fluctuated during the trading session on Monday, as we are trying to digest significant gains from the previous breakout. The downtrend line that I have marked on the chart clearly suggests that there was a bit of a change overall. Breaking above the $1850 level was a significant victory in and of itself, but the fact that we also broke above a trendline certainly helps as well. Furthermore, buyers will take a look at this through the prism of a “golden cross”, which is very bullish from a longer-term standpoint. That is down at the $1800 level, so I think that is essentially the “floor in the market” that we have at the current time.
Gold is getting a bit of a boost due to the fact that there is more inflation out there just waiting to happen, so that is something that you should keep in the back of your mind as well. If inflation concerns continue to be a major problem, we will see gold rally as a result. Furthermore, pay close attention to the US dollar. If the US dollar has a sell-off, then it is likely that gold will gain do from that tailwind alone. As long as that is going to be the case, then I have no interest whatsoever in trying to short this market.
The candlesticks from both the Monday and the Friday sessions ended up being somewhat neutral, so it makes sense that perhaps we will get a short-term pullback. The short-term pullback should be thought of as a potential buying opportunity as long as we can stay above the $1850 level. After a major breakout like we have just tagged, it is quite common that markets will pull back into the previous resistance in order to find support. That being said, if we were to turn around and break down below the downtrend line, then I think we will make a serious move towards the moving averages and perhaps even lower than that. The greenback selling off will continue to be one of the main drivers, and as a result you should keep an eye on the US Dollar Index overall. This is a market that I think has recently changed its overall attitude, which is something that you should pay close attention to.
