Gold markets have gapped higher to kick off the trading session on Monday, only to go back and forth and show signs of confusion. That being said, when you look at the last week or so, you can see clearly that we are trying to form some type of basing pattern just above the $1700 level. What is even more interesting at this point is the fact that it is not only previous resistance, but it is also the 61.8% Fibonacci retracement level.
If we were to break higher, perhaps breaking above the $1750 level, then we could continue to go higher, perhaps even breaking above the 50 day EMA which could bring in more buyers. If we can break above there, then we are very likely going to go looking towards the $1800 level, followed by the $1850 level. That is an area where we had seen a lot of selling, and clearly if we break above there then gold could really take off to the upside.
Having said all of that, I do believe that the next day or two will probably be somewhat quiet and choppy though, mainly due to the fact that all eyes are on the FOMC statement and question and answer session afterwards. After all, a spike in yields in America has played havoc with the greenback, which of course has its effect on gold. We need to see what Jerome Powell has to say or not say about yields and what the Federal Reserve plans on doing about them. It is not necessarily that the yields are so high in America, it is just that they have spiked so rapidly. This has caused quite a few headaches in the equity markets as well as the precious metals markets, so I think that this week is going to be very important.
If we were to break down below the lows of last week, I think that opens up a move down to the $1500 level, and that might have a lot to do with Chairman Powell not mentioning yield concerns at all. If the Federal Reserve gives the “green light” for yields do whatever they want, is very likely that they will go higher. All things being equal, I think that the markets will probably make their move after Wednesday afternoon. It certainly looks as if we are trying to form a basing pattern now.