The market looks like it’s ready for a bounce, so a short-term trade certainly seems to be setting up.
Gold markets initially looked like they were going to break down drastically on Friday, but turned around quite significantly to form a massive hammer. This is a technically bullish signal, especially considering where it ended up being formed. The $1800 level is an area that has been important more than once, so bouncing from there to form a hammer is a very strong sign. If we can break above the top of this hammer, it’s a bullish enough sign that some traders will jump in and try to pick up gold again.
On a breakout to the upside, I anticipate that the $1880 level will be targeted. This is an area that has been resistance more than once, and therefore I think we could see a bit of difficulty in that general vicinity. Nonetheless, the market could very well end up there quite rapidly as gold does tend to make sudden and erratic moves.
Pay attention to the 10-year yield, because if interest rates in the United States start to rise again, that works against the value of gold. It makes the US dollar more attractive, which works against gold being priced in that same currency. Furthermore, traders would much rather store paper than pay for the storage of massive amounts of gold. Anytime there is yield to be had, gold does fairly poor.
The market looks like it’s ready for a bounce, so a short-term trade certainly seems to be setting up. However, if we were to break down below the bottom of the hammer, it’s very likely that the market could lose $100 rather quickly. Gold has been extraordinarily volatile, but in the inflationary environment that we find ourselves in, it’s probably only a matter of time before gold has its day. I don’t know if Friday was a major turnaround, but it certainly looks as if it could be the beginning of something. Regardless, with the type of volatility that we have seen in multiple markets, you need to be cautious with your position size, especially in a market like this that has low volume. Furthermore, you need to keep in mind that Monday is the Independence Day holiday in the United States, and therefore it’s likely that volume could be a bit of an issue. Electronic trading will of course be available from time to time, but it is not a normal session.