The market had gotten far ahead of itself, so this pullback was probably going to be necessary the entire time.
Gold markets fell again on Monday to reach towards the $1950 level in the futures market. This is an area that I think could offer support, but the market has even more support underneath there. The $1920 level would be the next major support level, as it is a significant area that we had broken above.
The candlestick is rather negative looking, and I think at this point in time we are either going to find value hunters, or we are going to see a continuation of the downward pressure. A lot of this comes down to the Federal Reserve and what they do this week. Because of this, a lot of traders will be paying close attention to the statement coming out of the FOMC meeting, as it could give us a bit of a “heads up” as to where monetary policy is going to go, which in turn has a lot to do with interest rates and what happens with the US dollar.
Looking at this chart, if we were to break down below the $1920 level, then it is very likely that this market could break down rather significantly. The 50-day EMA is reaching towards the highs that were marked by the $1920 level, and therefore I think a lot of people would be paying close attention to it.
On the upside, if we can break above the $2010 level rather handily, it could very likely reach towards the highs yet again. I do not like the idea of jumping “all in” ahead of the FOMC meeting, so the next day or so might be more or less about observing gold markets than anything else. Because of this, even when I do enter the market, I will do so very cautiously, and with a small position size. After the FOMC statement and press conference, I anticipate that we will probably get more momentum in this market, regardless of the direction. The market had gotten far ahead of itself, so this pullback was probably going to be necessary the entire time. Whether or not we can continue the upward momentum is a different question, because it is worth noting that the recent high was actually part of a “massive double top” on the weekly charts.