- Gold opened with strong momentum as prices pushed toward $4,200, but low-volume holiday trading raises doubts about whether the move reflects genuine buying or short covering.
- Key levels, prior heavy volume, and Federal Reserve speculation all suggest exercising caution.
Gold has jumped out of the open on Wednesday as we continue to see a lot of momentum. What we're seeing here is an attempt to break above the $4,200 level, and I think that it is going to continue to be at a very important level to watch. At this juncture, though, one thing that I'm really concerned about is that we are heading into the next couple of days, which are holidays.
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So, trading will be limited in the futures market on Thursday as it's Thanksgiving in the United States and Friday will probably be somewhat then. So, the question then becomes, was this actual buying or was it short covering? I suspect it's a bit of both, but I don't trust moves with low volume. And that's what we've seen in the gold market and even more so in the silver market, which is just absolutely ripping higher.
Key Volume Levels and Market Signals
I think the real signal will come on Monday once the full weight of the market is felt again. I certainly wouldn't short gold and do believe that pullbacks offer buying opportunities. But the last thing you want to do is go into a big position in gold at $4,220 and have to wait for a bounce as you find it at $4,175.
Which is something that could happen very easily. Keep in mind, there was an extreme amount of volume at the $4,400 level when we sold off. And again, we saw a pickup in volume near $4,200 as we sold off. So, it'll be interesting to see whether or not the sellers return. Longer term, does gold go higher? I think so. But I am watching the $3,950 level because if we were to turn around and break below there, then it would be a very ugly turn of events. I don't really trust this rally. A lot of speculation as to what the Federal Reserve is going to do might be driving this, but the markets had the Federal Reserve wrong most of the last couple of years. So do keep that in mind. Caution is definitely needed here, especially with Thursday being a very, very limited session.
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