- I review gold’s recent volatile movement near the $4,000 level, noting overbought conditions and potential for sideways consolidation.
- While choppy action dominates, I see risks toward $3,800 or $3,500 if selling resumes.
The gold market initially rallied during the trading session on Friday, only to show signs of hesitation. That being said, the market has been very noisy, and ultimately, I think this is a situation where we have seen a lot of volatility and choppiness.
With the $4,000 level being important, it's obviously a large, round, psychologically significant figure. But it’s also worth noting that the gold market has recently stretched to the upside quite significantly in a very short amount of time, only to see selling pressure come back in as people return to reality.
The question at this point isn’t so much whether you should be a buyer or seller of gold—it’s what the behavior of the market is. What I mean by that is, do we go sideways, which would be bullish because it means that traders are willing to pay these higher prices and believe that $4,000 is reasonable? Or do we break below the lows of the week and start to threaten the 50-day EMA, followed by the $3,800 level?
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I do think it’s a little difficult to guess where we go next, but I think equal opportunity presents itself in both directions. If we were to break to the upside immediately with some type of impulsive candlestick, I wouldn’t like that, to be honest with you, because an overbought market doesn’t need more volatility to the upside. That’s not a good thing; it just means you end up crashing harder later.
So, with that being said, the longer we spend some sideways time here, the better off it’s going to be for the bulls. If we start to sell off again in the next few sessions, we could go to $3,800 and then eventually $3,500. Ultimately, this is a market where I think you can expect a lot of choppiness. In the short term, I would anticipate sideways action, but we always have the possibility of some type of external factor causing headaches as well. Remember, traders will run to this for safety if they need to, but it’s also worth noting that the US dollar is starting to strengthen again. And if there’s no panic out there, that will actually work against gold.
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