The gold markets fell during the Monday session as the risk off trade in commodities seemed to dominate the markets. The market then bounced from the $1,760 level, the area that it broke out of a few sessions ago. This support that we found at this level suggests a breakout and pullback - classic technical analysis.
The market looks very healthy, and the reasons for buying gold are numerous. The central banks are net buyers, and the markets will be buoyant as a result. The $1,800 level above continues to keep a lid on the markets, but this level will more than likely give way in the next few sessions. The trend is very strong since the start of the year, and the fact that so many central banks are in the middle of various easing policies suggests that the gold markets should continue to rise over time.
The market is a buy as long as we are above the $1,500 level - which is quite far from here. It literally will take a daily close all the way below that mark for us to seriously consider selling gold at this point. The breaking higher of $1,800 suggests a move straight to $1,900 and possibly $2,000 - which is where we think gold will be by the end of the year.
While the target seems high, it must be kept in mind that the market was just about $300 ten years ago. Most of the gains have actually been in the last couple of years, and the reasons for this gain haven't gone away. In fact, if anything - the lack of faith in various currencies will have only expanded over the last couple of years. The situation in Europe is a perfect example of this in action.
The trade for us is to buy any dips going forward, and as long as the economic situation stays the same globally, we see no reason for this to change. We will buy these dips on shorter time frames, but keeping an eye on the levels mentioned above for guidance going forward.
Gold Forecast February 28, 2012, Technical Analysis
Gold Pivot Points (Time Frame: 1 Day)
Name S3 S2 S1 Pivot R1 R2 R3