Gold markets fell significantly on Friday to reach down towards the $1780 level. However, we have bounced just a bit to show signs of life, but I think we have to be very cautious about the gold market at this point. Yes, we are closer to the support of $1775 than anything else, but I also recognize that the US dollar strengthening is a bit of a problem. With this being the case, a break above the top of the candlestick for the trading session might be a nice short-term buying opportunity in a large range.
To the upside, we also have a gap above that needs to be filled, and that might be where we are heading given enough time. That being said, I think we have a lot of work to do in order to change the overall attitude, as there has been a significant amount of damage done during the week. It certainly looks as if we are going to struggle for a bit, but if we do rally, I think it could be a nice short-term trade. In fact, it is not really a bigger position of mine until we get above that gap and clear the $1850 level.
If the US dollar continues to strengthen, it is likely that we will continue to see gold struggle a bit, as the negative correlation continues. However, if interest rates start to fall off a bit, that could help gold. Regardless, I think at best we are looking at a ranging market, and at worst we could see some type of breakdown. Keep in mind that the candlestick for the Friday session does suggest perhaps a little bit of a bounce, but it is not quite a hammer. Because of this, it looks like we are going to see a bit of noisy behavior, but that is nothing new to the gold market. Keep your position size relatively small as we have a lot of noisy behavior, as this can cause major problems if you are over-levered. With this, I look at this through the prism of a back-and-forth type of market, as we are oversold in the short term. However, you have to be very cautious with that $1775 level below.
