The gold markets rallied quite significantly on Wednesday to break above the 50-day EMA as Jerome Powell testified in front of Congress. He continues to speak about the Federal Reserve keeping monetary policy loose, as inflation is only “transitory.” This flies directly in the face of the RBNZ and the Bank of Canada, both of which have cut back on quantitative easing. Both central banks believe that inflation is likely to run rather hard for a while, so they are starting to tighten ever so slightly. That being said, the Federal Reserve is on the other side of that trade.
If that is going to be the case, then it does make sense that the gold market would rally, as the US dollar was a little softer during the trading session. After that, we also have to look at the fact that we are reaching into a major gap that has yet to be filled, which is something that happens most of the time in the futures market. The $1860 level above is the top of that gap, and it certainly looks as if the market may try to make a move towards that area. If we can break above that level, then the market will be showing a significant amount of strength, opening up the possibility of a move towards the $1910 level. After that, we could even be talking about a move towards the $2100 level, but obviously we need to see quite a bit of momentum enter the market.
At this point, it does not look like we are going to start selling off, at least not yet. That being said, the top of the gap typically is very resistive, so we will have to wait and see whether or not it holds. On the other hand, if we break down below the $1790 level, then it is likely that we could go looking towards the $1750 level, an area that had previously been resistance as well as support. If we break down below there, then the market is likely to go looking towards the double bottom after that which sits at the $1680 level. In other words, I think that we have a couple of levels to watch, which could give us a bit of a “heads up” as to where the next move goes.
