Gold markets rallied a bit during the Monday session, which was Memorial Day in the United States. Because of this, you can only read so much into the move, as liquidity was very thin and we would have been in somewhat limited electronic trading hours. Nonetheless, this is a market that had been in an uptrend for a while, so it is a simple continuation of what we had been doing.
At this juncture, it appears that the $1900 level is rather important, as it has acted as a bit of magnet for price. If we can continue to go higher, I suspect that the next target is $1950. To the downside, the $1850 level should be supportive, and I would look at a move down to that area as a potential buying opportunity. Breaking down below that opens up the possibility of a retest of the previous downtrend line and the 50-day EMA.
Gold has gotten a bit of a boost due to the shrinking US dollar, but there are also signs of the dollar trying to fight back. It is because of this that we could very well see a little bit of a pullback in the gold market. The inflation trade has also been a big driver of gold, as the “real rate of return” in the bond markets have not been enough to cover inflation. Keep in mind that if bond rates suddenly spike, that actually works against gold, as it allows for people to clip coupons in the bond market to beat inflation instead of paying for storage in this market.
We are a little stretched at this point, so I think for no other reason than a bit of a technical move we probably need to pull back. That does not change the overall outlook of this market though, and right now it appears to me that we are trying to get towards the highs again, albeit very slowly. This does make sense, as the inflation outlook for the rest of the year is pretty high, and that makes for a good environment for gold to preserve wealth. With that being the case, I like the idea of going long, but I would also look for some type of pullback to get involved.
