Gold markets initially fell a bit on Tuesday but then turned around to show signs of strength again. It is obvious that gold is still favored by a lot of traders out there, and as a result I think that we continue to see a “buy on the dip” mentality in the short term. That being said, we have to pay close attention to the gap above as it will be a target for short-term traders. Furthermore, we have to worry about the CPI numbers coming out on Thursday, which will have a major influence on where we go next.
Gold is a very fickle market, as it takes very little to get it running in one direction or the other it seems. The bond markets will come into the picture as well, because interest rates in the United States continue to pick up. Traders are starting to price in something close to six interest rate hikes by the Federal Reserve, which of course will never happen. Nonetheless, the bond market has enough yield that people are more likely than not going to favor that over the cost of storage when it comes to gold. Because of this, you have to watch those interest rates to see if they continue to spike and that could be the reason we turn around. The most certainly will if inflation comes out over 7.2% at that CPI announcement.
In the short term, I think we will probably do go a little bit higher, but eventually we will see selling pressure and a pullback. If we were to break out above the gap, then we could go looking towards $1850 level. It is difficult to imagine a scenario where we go straight up in the air, and we are getting a little bit stretched at this point. I certainly would not be a seller, but it is difficult to chase a market that has risen that quickly. The 50 day EMA underneath should be supportive, and I think that any dip towards that level will probably get bought into unless interest rates drop drastically after the Thursday announcement. Right now, it is a little bit much to simply guess, but if you are already long of this market, there is no sign here to get out in the short term.
