As we approach the end of the month, liquidity will all but disappear, and you need to keep in mind that there will be a lot of questions as to whether or not the moves are “real” as we head towards the holidays.
Now that the Wednesday FOMC meeting has come and gone, it appears that the gold markets have found Powell's statement and FOMC decision to be reasonably bullish. Now that we have that out of the way, it is interesting to see just how much we rallied from the lows, near the $1750 level. The market has seen a significant amount of pain in that area, so it does make sense that we would see a lot of short covering as we rose. The question now is whether or not we can continue to go higher.
If we do break out to the upside, we still have a lot of work to do near the $1795 level. There is the psychologically important $1800 level, but there is also the 50 day EMA and the 200 day EMA to deal with. With that being said, I think it is going to take a lot of work to get above there. If we do, then the next major resistance barrier that I see is near the $1820 level. Anything above there then we will allow the market to go much higher, perhaps reaching towards the $1875 level, which is a major resistance barrier as we have pulled back sharply from that area.
When you look at the longer-term chart, you could make an argument for a bit of consolidation, and that the Wednesday session was simply the market getting over a lot of fear. Because of this, I think we will continue to see noisy behavior, but now that we have turned around the way we have, it is more likely than not that we will simply chop around with more of an upward momentum. A short-term “buy on the dips” strategy may work out, but you have to keep it through the prism of a larger range-bound strategy. As we approach the end of the month, liquidity will all but disappear, and you need to keep in mind that there will be a lot of questions as to whether or not the moves are “real” as we head towards the holidays. I would keep my position size small regardless, because this is not the time of year to mess about. Sudden spikes in the market are not that uncommon, only to be reversed almost immediately.