Be cautious with your position size and only add as things work out.
The gold markets initially fell through the $1750 level before turning around, but at this point in time the market is likely to continue to see a lot of noisy behavior. The $1775 level above is resistance, and it should be noted that the biggest move that we have seen recently has been to the downside, which is something that continues to be the case over the last several months. With this, the market is likely to continue favoring the downside, so if we do rally, I think at this point in time I will be shorting this market at signs of exhaustion.
Alternately, if we were to break down below the bottom of the candlestick for the trading session on Monday, then it is likely that we could go looking towards the $1680 level underneath, which has been an area of importance more than once. That is an area that has been like a “hard floor the market”, and therefore we need to pay close attention to it. In fact, I think if we break down below there the gold market will collapse. Having said that, I think it is going to take quite a bit of momentum to make that happen.
The US dollar has a major influence on this market, as there is a huge negative correlation between the greenback and the gold market, so pay close attention to that. If the US Dollar Index starts to rally, then that will probably put a bit of weight upon the gold market. On the other hand, if we do turn around and rally to break above the 200 day EMA near the $1800 level, then the market is likely to go higher, testing the $1835 level. Obviously, that would be a very big move, so it would take a certain amount of momentum to make that happen. All things been equal though, this is a market that certainly looks as if it is on the precipice of making a bigger move to the downside, so keep an eye on the lows of the last couple of days. The market is going to be noisy, but clearly it has a lot of work to do if we think that it is ready to make a bigger move. Be cautious with your position size and only add as things work out.