The gold markets fell rather significantly during the trading session on Monday to reach down towards the 50-day EMA. That indicator sits at roughly $1850, an area that I have been talking about for a while, as it has offered support and resistance multiple times in the past. With that in mind, the fact that we bounced the way we did does suggest that there is, at the very leas,t a bit of messy support underneath.
Even so, there are a lot of questions out there when it comes to the idea of inflation and whether or not it is transitory or simply something that is going to stick around. The way that gold has been sliding as of late has most certainly been testing the bottom of a significant short-term range. If we can break down below the consolidation that we are currently in, it could send this market down towards the $1800 level where the previous downtrend line should come into play in order to keep the market on the bullish side. However, if we were to break down below that downtrend line, then it is very likely that we would continue to go much lower, perhaps reaching towards the $1675 level where we had formed a bit of a “double bottom” recently.
The market turning around and breaking above the top of the candlestick for the trading session on Monday should send this market looking towards the $1920 region, which was the most recent high. If we can break above there, then I believe that the next target will be $1950, and then eventually the $2100 level given enough time. That would obviously be a longer-term call and needs a little bit of help from the US dollar losing strength. After all, the gold market is priced in the same US dollars, and as a result, it takes more of them to buy gold if the greenback falls. Furthermore, we need to pay close attention to the idea of what the yields are doing in the bond market, because if they start to rise quite rapidly in the form of real yields, that works against gold as well. Nonetheless, the technical analysis does suggest that we are going to go a little bit lower in order to try to find confirmation of the trend line breakout.
