Gold markets fell significantly during the trading session on Friday only to turn around and bounce enough to form a hammer again. The market continues to stick to the 200-day EMA as well as the 50-day EMA, hanging around the $1800 level. When I look at this chart, it is not hard to see that there have been several hammers in a row, preceded by a shooting star and a false breakout. In other words, we just do not know where to go next and it does make sense when you pay attention to the bond yield situation in the United States as well.
Gold markets seem to be stuck in this pattern and, until we get some type of resolution to the inflation/deflation debate, we will probably continue to see more of the same type of obnoxious sideways behavior. If you are a short-term trader, then you like this type of action as the $1790 level has offered such a hard floor in the market, and you have been able to go back and forth on short-term charts. If we can break above the top of the 50-day EMA, it is possible that we might go looking towards the $1825 region, which has seen resistance here recently. If we were to break above that level, then the market is likely to go looking towards the top of the gap on the chart which is near the $1860 region.
Filling the gap is something that you would expect to see, but if we were to break above there then it is likely that we could go higher, perhaps trying to reach towards the $1900 level. The $1900 level is a large, round, psychologically significant figure, and an area that I think that would attract a certain amount of attention. Breaking above that level then opens up the possibility of a much bigger move, going all the way to the $2100 level.
To the downside, if we break down below these hammers that have formed this week, I think we will probably go looking towards the $1750 level, an area that has been significant support as of late. Breaking down below that level then opens up the possibility to reach down towards the double bottom near the $1680 level. Ultimately, it is a bit of a 50-50 shot, but it certainly looks as if we are building up inertia for a big move sooner or later.
