During Monday’s trading session, significant pushing through of stops propelled gold markets straight up in the air. However, a significant reduction can be been since than.
Technical Analysis of the Gold Market
On Monday, gold markets went on a wild rollercoaster, rising well over $100 almost instantly, only to crash and burn. The market had clearly blown past some form of stoploss order and was unable to find liquidity higher. At this point, it remains uncertain who might still have gold to sell, but it is evident that the market generally favors the upside.
Short-term pullbacks should find some support beneath, particularly near the $2050 level, but I’m not sure how this will play out just yet given the advance has been so unpredictable.
Interest rates in America falling undoubtedly support this market, yet one may argue that the markets are overdone. At this point, traders are attempting to price in the concept that the Federal Reserve will begin decreasing interest rates in March, which may be a bit aggressive, but lower interest rates make sense for gold.
Furthermore, bear in mind that the market has been pricing this in for quite some time, so you would have to believe that given enough time, the market would try to find some form of upward momentum, since gold is one of the finest ways to flee.
That being said, it is rather disconcerting that the market has swung around so quickly, raising the issue of whether or not there will be sufficient follow-through.
As a result, I still believe in the potential, but I don’t feel the need to throw a lot of money at this market right now, because the increase we’ve witnessed is entirely abnormal.
It’s also worth mentioning that it happened practically immediately in Asian trade, maybe when there isn’t much volume, so there’s only so much we can read into what we’ve seen, other than the fact that the market is still positive.