Gold Forecast: Markets Pull Back to Test Support

Christopher Lewis

At this juncture, I would be cautious with my position size because the gold market tends to be so noisy under the best of circumstances.

Gold markets fell rather hard on Monday to reach down towards the $1920 level. This is an area that begins a significant support barrier all the way down to the $1880 level. It is also worth noting that the 50-day EMA sits in that same general vicinity, so it does suggest that there are buyers underneath that will continue to pick this market up.

If we were to break down below the $1880 level, then it could change a lot of things, but until then it is likely that there will continue to be buyers willing to pick up bits and pieces of value along the way. The candlestick for the day was somewhat negative, but it did not violate support, so that is a good sign. That being said, I think that we will have a lot of noisy trading ahead of us, as we have been banging around in a bit of a channel. Gold still looks relatively healthy, but I do think that we are about to test the support level underneath.

Breaking below that support level would be catastrophic because we have seen such a huge push higher only to give it up. A breakdown below the $1880 level opens up the possibility of a move down to the 200-day EMA. At that point, we would be looking closer to the $1840 level. A breakdown below there could send this market much lower, but that would obviously take a major shift in fundamental attitudes.

Alternately, if we break above the highs of the last couple of trading sessions, it would send the gold market looking towards the $2000 level above. The $2000 level is a large, round, psychologically significant figure, and an area that will cause a little bit of noise. That being said, we have already broken above there before, so it is interesting to see how we will behave there. Clearing that area opens up the possibility of a move towards the all-time high again. The area that we are currently in has been noisy and will more than likely continue to be. At this juncture, I would be cautious with my position size because the gold market tends to be so noisy under the best of circumstances.

 

Christopher Lewis

Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.

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