Gold markets initially tried to rally on Friday but gave back early gains to form a massive shooting star. We have been a little overdone over the last couple of days, and now that we have pulled back from the 200-day EMA, it looks like we are starting to finally run out of steam. That being the case, the market is likely to pull back a bit from here and fall back into the overall consolidation area. It certainly looks as if the $1800 level and above is going to continue to offer resistance, but I can also make an argument that we are just testing the top of the overall consolidation.
If that is going to be the case, then it makes sense that we would fall from here, especially as we are heading into the last two weeks of the year. Remember, between now and New Year’s there will be a significant lack of liquidity, as most people will not be wanting to place big bets on commodities. That being said, if somebody does it could spark some type of spike in the market in either direction, so you need to be somewhat cautious with your position size.
To the downside, I believe that the $1750 level is the bottom of the overall range, so I think we are more likely than not to go falling from here and looking towards that general direction. Whether or not we make it all the way down there is a completely different question, but will almost certainly be something that we attempt. On the other hand, if we turn around and break above the $1820 level, the market is likely to go looking towards the $1850 level, which is where the next major resistance zone begins.
Pay attention to the US dollar, as it has its negative correlation to the gold market as per usual, just as real rates coming out of the 10 year note will. As things stand right now, it is very unlikely that markets are going to make a big decision between now and New Year’s Day, so I play this more or less as a range-bound market that I can take advantage of when it gets to the extremes.
