Gold got hammered on Friday as we had initially tried to rally during the day, but it looks as if we are struggling to break out of a significant consolidation area. The $1830 level above has been a significant amount of resistance, so it is not a huge surprise to see the markets sell off a bit. That being said, there are multiple levels that could jump into the picture and push things back and forth.
The first area of interest I see to the downside would be the $1800 level, because it is a significantly large, round, psychologically important figure, and an area where we have seen the 200 day EMA and the 50 day EMA. That being said, the market is likely to see a line of noisy behavior in that general vicinity. If we were to break down below there, then it is likely the market could go looking towards the $1785 level.
A lot of what we have seen over the last couple of days has been due to the idea of the Federal Reserve tightening its monetary policy, but there are a lot of people out there that believe that the Federal Reserve is making a policy mistake, so it will be interesting to see how that plays out. A lot of people are starting to buy bonds again, but they fell a bit during the trading session on Friday, followed by a little bit of a relief rally. This played havoc with the gold market, because if you can get strong returns as far as interest is concerned, then it is much smarter to buy those pieces of paper than it is to store gold.
If the US dollar falls apart, then that of course helps gold, but at this point I do not think you can get aggressively long of this market until we can break above the $1835 level, which opens up a move all the way to the $1875 level. Ultimately, this is a market that I think continues to see a lot of back and forth, and I think what we have here is a situation where you just go back and forth more than anything else. Because of this, you may need to continue to look towards range-bound systems.
