Ultimately, this is a market that will have to prove itself over the next couple of sessions, but right now it certainly looks as if we are going to threaten a significant break out.
Gold markets have rallied significantly during the trading session on Thursday to reach towards the 200 day EMA. By doing so, it does suggest that there is more strength coming, but at this point in time it looks like we need to get a lot of noise out of the way. The fact that we have touched that 200 day EMA will attract a lot of attention in and of itself, but it should also be noted that the $1800 level is just above.
The area above the $1800 level extends to the $1820 level as far as resistance is concerned, and I think it will be difficult to overcome. Ultimately, this is a market that needs to break through all of that in order to have a bigger move. Yes, we get a nice gap higher to kick off the session on Thursday, so now what we are looking for is a little bit of follow-through. If we can get that, it would obviously be a very bullish sign, perhaps sending the market much higher. Nonetheless, this is a market that will continue to be very noisy, and even more so now that we are heading into the end of the year. Remember, at the end of the year liquidity becomes a big issue, as a lot of traders are trying to close out positions for the end of the year reporting.
The gold market of course has its negative correlation to the US dollar and real rates to pay attention to, so obviously you need to be attuned to what is going on in the bond market, as it has such a huge influence. Gold certainly has had a nice run, but I could make a reasonable argument for the market simply consolidating in this general vicinity as we are revisiting the top of what has been an important range. Ultimately, this is a market that will have to prove itself over the next couple of sessions, but right now it certainly looks as if we are going to threaten a significant break out. To the downside, I see the $1760 level as a potential “floor in the market.” Anything below that level of course would be extraordinarily bearish, perhaps sending this market much lower, reaching down towards the $1750 level initially, and then the $1725 level.