Even with the rise in gold on Wednesday, the gold markets have been very bearish over the last several sessions, and as a result the metal has lost over $100 an ounce in just a little over a week. The argument is that there is a lack of inflation around the world, and that many of the economies are simply slowing down far too much in order to produce any kind of inflative kind of environment. However, this misses the point that many of the world s central banks are also pumping the markets full of liquidity, and the gold market has been very bullish for over a decade. In other words, this is a market that is healthy over the long run, and as such we don't like selling it.
The 200 day exponential moving average is just below the action for the session on Wednesday will certainly have been noticed by many traders, and as such we feel some of the buying during the Wednesday session may have been a bit technical in nature. None the less, there is little doubt that the fiat currencies are all being debased, so the gold and other stuff markets will continue to attract a bid over time.
The $1,650 level looks as if it is going to be somewhat supportive, but in order for us to get involved, we need to see stability in this market. These kinds of shakeouts happen from time to time, and it normally takes the market a few sessions to find its footing after a precipitous fall like we have had recently. With that being said - we have always recovered from these moves, and there is nothing to suggest this time is any different.
The best way that we have found to trade this kind of action in the gold market is to let the market stabilize, and then place small buying positions in the commodity as the action can still be somewhat whippy. As the markets rise, we are more comfortable adding to the positions. With this in mind, as soon as we are stable, we are willing to dip our toes back into the market on the long side.
Gold Forecast March 8, 2012, Technical Analysis
Gold Pivot Points (Time Frame: 1 Day)
Name S3 S2 S1 Pivot R1 R2 R3