The gold markets broke higher during the trading session on Monday, as we continue to see the US dollar get hit and traders look to fight the idea of inflation. Inflation coming should continue to lift the value of gold, as long as bond yields do not skyrocket, as rising yields and a very fast pace can produce a “real rate of return”, meaning that it is essentially a risk-free trade owning bonds for the duration. This beats the idea of paying for storage of gold, but it now looks as if inflation could outpace what is going on in the bond market, and if that is going to be the case ,then gold should do quite well.
As you can see, we are well above the $1850 level and the downtrend line that I have drawn. At this point, I think that short-term pullbacks will continue to be a buying opportunity for gold as traders continue to worry about inflation getting out of hand. It is very likely that we could go looking towards the $1950 level, but it will not necessarily happen overnight. On the other hand, if we were to break down below the downtrend line, then we could go back into the previous consolidation, but there is nothing on this chart suggesting that is going to happen at the moment.
The fact that the market is closing at the very top of the range is a very bullish sign, so I like the idea of buying and scaling into a larger position as we should see a fairly significant move at this point. The size of the candlestick is also relatively important, as it is stronger than some of the other most recent ones, so that is yet another reason to think that gold may have a bit more momentum underneath. Nonetheless, we could get the occasional pullback, which could be a buying opportunity on shorter-term charts. I have no interest in shorting anytime soon, but would have to rethink the situation if we break down below the 200-day EMA, colored in black on my chart. Until then, we should see plenty of people trying to get involved on these dips as they should represent value.
