Ultimately, this is a market that I think will continue to favor value hunting, which means buying dips in the short term.
Gold markets gapped lower to kick off on Wednesday to continue going lower and reach the $1900 area. That is an area that previously had been important, and the fact that we have bounced from there does suggest that we are ready to go higher, especially as we have formed a nice hammer. The hammer of course is one of the more bullish candlestick formations that you will see.
At the very least, you would have to assume that the gap will get filled. That would send gold close to the $1940 level. Above there, then the $1950 level is a potential target, followed by the $1970 level. At that point, I would anticipate that gold will go looking towards the $2000 level, possibly even the $2050 level.
On the downside, if we were to break down below the range for the trading session on Wednesday, it could open up fresh selling. At that point, it is very likely that gold would get sold off quite drastically, with an eye on the $1850 level. That area will potentially be supported not only by the previous action that we had seen but by the 200 Day EMA as well. The market will continue to be very noisy, based on the bond market, and of course the US dollar. There are a whole host of issues out there that could come into the picture, not the least of which will be concerned with global growth and inflation.
Looking at this chart, the market has had a nice pullback, and now it looks like we are trying to find our footing. The footing could lead to a resumption of the uptrend, but then again if we were to break down below the support level underneath, then it is likely that the trapdoor will open, and we will see a significant amount of momentum enter this market. Ultimately, this is a market that I think will continue to favor value hunting, which means buying dips in the short term. It will be very momentum-driven over the next couple of days, and right now it looks as if quite a bit of pressure has re-entered to the upside based on the last 24 hours or so.