Volatility is expected to remain extreme, as the dramatic range of last week clearly illustrate. The short-term chart patterns will be useful in establishing support and resistance levels within this range. Targets both higher and lower are likely to be overshot to some degree as the market struggles between profit-taking and speculative buying, with the backdrop of the equity and currency markets sure to influence the overall longer term trend from these levels.

Given the depth of the pullback, a retracement to the $1,800 level would likely require a resumption of panic selling on Wall Street, or a major exodus from the US Dollar, or some combination of both. Alternatively, an influx of buyers into the precious metals could also be encouraging a short squeeze as limited supply becomes rapidly consumed by large investors looking to hedge their risks. Considering the impressive strength of the bull market in gold, short-sellers may be slow to enter even on hard breaks such as this.

Traders will be watching the Channel Down chart pattern support near $1,700 per ounce as the week begins, in the event that the initial breakout target is reached, or if the upside projection fails and a new wave of selling comes into the market.
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