Gold markets initially shot higher during the trading session on Friday but then turned around to show signs of weakness yet again. The shape of the candlestick is a shooting star, and it is worth noting that the last several days in a row have looked the same, suggesting that the market is going to continue to hear a lot of noise just above. This is especially true as the $1800 level is a large, round, psychologically significant figure and an area where we had seen resistance previously.
To the downside, the $1750 level underneath is significant support, and it is worth looking at the previous action that it has not only been support, but it has also been resistance. That being said, the market is likely to continue seeing a lot of choppiness in the short term, but if we were to break down below the $1750 level, then I think we would go looking towards that double bottom underneath at the $1680 level. Breaking that level to the downside could open up the “trapdoor”, pushing this market much lower, perhaps even as low as the $1500 level.
To the upside, if we were to clear the $1800 level, and perhaps even the 200-day EMA, it is likely that the market would go much higher. At this point in time, I would anticipate that the market would go looking to fill the gap above to reach towards the $1860 level. Filling the gap is a very bullish sign, but if you cannot get the market above the top of the gap, then the market is likely to go looking towards the $1900 level and beyond. That could be a sign that the market is going to see a major reversal and a bullish run towards the highs, but we have a long way to go before that happens. I think the market is likely to be very noisy, but I do recognize that you also have to pay attention to the US dollar as well, as the greenback typically has a bit of a negative correlation to the gold market, as the contract is priced in those very same greenbacks. This is a market that I think continues to see a lot of choppiness and you have to keep your position size somewhat small.
