There is so much volatility just waiting to happen that you need to be cautious.
Gold markets have found the same support that we have seen multiple times, near the $1785 level. That is an area where we have seen a lot of buying pressure multiple times over the last couple of months, so it is not a huge surprise that we have seen a little bit of a bounce. That being said, the market is likely to continue to see this area as important, and with all of the headlines coming out this week, I suspect that the gold markets will be very noisy.
When you look at the calendar, you can see that there is the jobs number on Friday which moves the US dollar, but we also have the Reserve Bank of Australia’s interest rates being discussed first thing Tuesday morning, followed by the Bank of England and the European Central Bank interest rate meetings this week. In other words, I would anticipate a lot of noisy behavior in the short term, as the gold market will be thrown around by all of the interest rate volatility coming from multiple places around the world.
Gold markets have problems with liquidity at times, and there are a lot of different question to ask about what the external influence could be. For example, a strengthening US dollar could be negative for gold, just as interest rates rising too quickly could be. On the other hand, if interest rates get absolutely crushed, that could be bullish for gold at the same time. I think with all of the announcements though, the only thing you can probably keep in the back of your head is the fact that the position sizing of this contract needs to be very small, because there is such a high possibility of sudden moves and extreme shots in both directions. That being said, though, if we were to break down below the $1780 level on a daily close, that could open up fresh selling in this market, perhaps sending gold down towards the $1750 level, maybe even $1700. To the upside, if we break above the 200 day EMA at the $1802 level, then we could go as high as $1832 to fill the gap that sits above. Either way, there is so much volatility just waiting to happen that you need to be cautious.
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