Gold markets have rallied a bit during the trading session on Monday, gaining 0.75% as soon as the Americans stepped on board. Looking at the market, it’s obvious that we had a previous uptrend line, and we have walked right along the bottom of it as of late. This is continuing to offer resistance, but at this point it’s obvious that the market has a lot of work to do if we are going to explode to the upside.
Gold daily chart
Central banks
As I’m sure you are aware of now, the central banks around the world are starting to ease their monetary policy. This of course is good for gold, as currency depreciation helps precious metals when people try to preserve their wealth. With that being the case, it looks as if we have a significant amount of bullish pressure, but of course we have a lot to work with above in order to take off to the upside.
Support and resistance
The $1325 level is an area that will cause a significant amount of resistance based upon the previous uptrend line, the psychological importance of the number, and of course where we had sold off at the beginning of the month. Looking at this chart, it’s very likely that the $1300 level will offer plenty of support as well.
Looking at this chart, one could make an argument for a potential consolidation area, but clearly in the short term it looks as if the buyers have the upper hand. If we were to break down below the $1300 level, then we could go down to the $1275 level which features the 200 day EMA currently.
All of that being said, expect choppy action, and make sure you pay attention to what the US dollar is doing. If the US dollar gains in strength it could work against gold, as the contract is priced in those same dollars. If the US dollar rolls over, that could send this market above the $1325 level and looking towards the $1350 level after that.
Risk on/off
A lot of traders will look at gold as a way to play the “risk on/risk off trade.” If we get a lot of selling pressure in equities, we could see gold rally as a result, as people look for some form of safety. Gold isn’t necessarily the greatest safety asset, but at the end of the day it’s a short-term reaction by a lot of traders.
Ironically, you can also make an argument for gold rallying in a “risk on” attitude as well. This would be if the US dollar falls, and perhaps equity markets and the like rallying, that will naturally put a little bit of a push higher in this market as those US dollars have less value to buy ounces of gold.
One thing is for sure, as the markets rotate and show a lot of volatility, the Gold markets will right along with the rest of them. With that in mind, keep your position size small but right now in the short term it looks as if we have a couple of levels that we should be paying attention to in gold. For what it’s worth, silver is doing something very similar, which only validates thoughts in this market as the two markets do tend to move in the same direction over the longer-term.
