Gold markets dropped a bit to kick off the Friday session only to turn around and show signs of strength yet again. Gold has been threatening a breakout for a while now, with the $1820 level being the area that I need to see broken above to get long. This is not to say I do not expect it to happen, just that you should keep in mind that the lack of liquidity could cause some issues.
That being said, if we do break above there, then I would anticipate that this market is going to go looking towards the $1875 level. I also think that it would happen rather quickly, because I envision a huge “air pocket” between the two levels. If we do get that move, I would get long of gold and add as it works out in my favor. That being said, I do not necessarily think that we are just going to slice right through the $1820 level easily, rather it will probably take a couple of attempts due to those liquidity issues. To the downside, the $1775 level offers plenty of support, so if we were to break down through there it would obviously be a very negative turn of events. At that point, I would anticipate that gold would probably go looking towards $1750 rather quickly, especially if the US dollar is strengthening at the same time. Gold certainly looks as if it is trying to figure out its way higher, so given enough time I fully anticipate that this market will break out.
The 50 day EMA and the 200 day EMA both are flat, which tells you everything you need to know about how range-bound this market had been recently. Nonetheless, it does look like we are about to make a decision and right now all things are pointing upward. Pay close attention to the US dollar, because it will have its say as well, and if the US dollar starts to fall, that will probably help gold in and of itself. Keep that negative correlation in the back of your head when your trading, as it can keep you out of a lot of trouble. Also of interest will be interest rates, and whether they are rising or falling can have a massive influence here as well.
