Gold markets rallied a bit on Monday but gave up some of the gains as we continue to see a lot of noisy behavior just above the $1920 level. Because of this, I think the market is going to continue to pay close attention to not only this region, which I see extending all the way down to the $1880 level but also the fact that we have the 50-day EMA that comes into the picture to offer support as well.
When you look at this chart, you can see gold had gotten far too ahead of itself, and this pullback has been necessary. Whether or not this continues into a major selloff is a completely different question, but I think it is worth noting that we needed this pullback and it seems as if this is the market is simply trying to catch its breath. If that is going to be the case, then it is more likely than not we will see buyers jumping back into this market rather soon.
I like the idea of buying this market at this point, especially if we break above the $1950 level. If we break above that level, then we could go looking towards the highs, but I hope that it will be a slow move, not something that is going to happen overnight. The market does not typically move the way it has, and parabolic moves almost always have to be corrected. Now that we have done that, it will be interesting to see how this plays out over the next couple of weeks, but at this point, I still believe that we are going to go higher over the longer term, but we need to see some type of stabilization before we can really get going to the upside.
If we break down below the $1880 level, then we could see a much larger drop down from there, reaching down towards the 200-day EMA. The market at that point would have wiped out a lot of gains, and we should more than likely go much longer, perhaps reaching down towards the $1800 level and beyond. I do not think we are getting ready to do that, but you need to keep an open mind just in case the market suddenly lurches against you.
