Gold markets exploded to the upside on Wednesday to break through the significant $1835 level. This is an area that will continue to be very crucial, as it is an area that I think a lot of people will be paying attention to now that we have broken through there, but also have pulled back quite a bit. That being said, the market is more than likely going to see a certain amount of support at the $1835 level, but if we were to break down through that level, it would suggest that we have just witnessed a “blow off top”, which is a major problem. At that point, it would more than likely see the markets break down a bit, showing signs of the market wanting to retest the previous resistance barrier. Nonetheless, this is a market that has cleared out a lot of stop losses.
At this point, as long as we do not wipe out the candlestick from Wednesday, it is very likely that gold will continue to rally, although it may not be a shot straight up in the air. However, if we were to break down below the bottom of the candlestick on Wednesday, then it could open up quite a bit of selling pressure. At that point, I think that we would probably go looking towards the 200-day EMA, but it is also worth noting that the 50-day EMA is trying to break above that 200-day EMA, forming the so-called “golden cross” that a lot of people pay close attention to.
In general, this is a market that I think will continue to see a lot of noisy behavior, but inflation is starting to take off to the upside, and if that is going to be the case it is possible that we could see this market rise right along with inflation, especially if the interest rates do not match the overall velocity.
The market will continue to look very bullish in general, but I also recognize that gold tends to be very noisy and therefore you need to be cautious about your position size. Unfortunately, in the action that happened during the trading session, I had received a lot of emails from people who started jumping into this market with huge positions trying to get involved in the “FOMO.” By the time my email box was full, multiple people had already found themselves under water. Furthermore, some of them had levered the positions, something that is very difficult to recover from if it works against you. Position sizing will be crucial.
