The gold markets rallied a bit during the trading session, breaking above the $1900 level during early hours on Wednesday. However, we have turned around to show signs of weakness and ended up forming a bit of a shooting star. At this point, the market is likely to pull back towards the $1850 level, an area that we had broken out of previously. The downtrend line slices through just below there as well, so I think that is also supportive. Beyond that, we also have the 50-day EMA breaking above the 200-day EMA, which is the “golden cross” that a lot of longer-term traders pay close attention to. If we do break down through those moving averages, this market would more than likely break down quite drastically.
To the upside, if we were to break above the top of the shooting star, that would be a very bullish sign obviously, and it could open up a move towards the $1950 level. After that, then we could go as high as $2100 over the next several months, and if inflation does tend to stick around and really pummel the market, we could see gold take off. However, if bonds suddenly spike as they did recently, that will work against the value of gold, as it is easier to clip coupons on a bond to take advantage of those higher yields and real interest rate gains than it is to pay storage fees for gold, which can be quite costly.
In general, this is a market that I think will continue to see a lot of noisy behavior, but one thing that is worth paying attention to is the US dollar. If the US dollar strengthens a bit, then that works against the value of gold, just as if it falls, that could give a little bit of a boost for the market. We have seen a significant amount of momentum as of late, but we are also getting a little bit stretched ,so I think at the very least you can probably count on a little bit of a pullback in the short term. I think things are going to get really interesting towards the end of the week, especially if we get anywhere near the $1850 level.
