- Gold markets hovered around the $4,000 level on Monday amid noisy trading and fading momentum.
- While recent selling suggests a potential distribution phase, support near $3,883 remains critical.
- Caution dominates as volatility persists and Fed policy uncertainty weighs.
Gold markets have been very noisy during the trading session on Monday as prices continued to hang around the $4,000 level. The $4,000 level, of course, is a large, round, psychologically significant figure and an area that has been important for some time. Gold had recently seen a massive shot higher, but then faced heavy selling pressure, causing it to turn around and fall apart.
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With that being said, the increased volume at the highs and now dropping volume suggest that perhaps we may have just seen a distribution phase, if you are, in fact, somebody who subscribes to the Dow Theory. Ultimately, the 50-day EMA sitting at the $3,883 level and rising is a significant support level that many traders will be watching closely.
On a Break Lower…
If we were to break down below there, it opens up the possibility of gold dropping down to the $3,800 level. The $300 move over the last couple of days suggests, of course, that we are going to continue to see a lot of questions asked about this market. And although it was rather ugly, the reality is that we are still very positive in relation to where we were just a few months back.
We had previously formed an ascending triangle that measured for a move to that $3,800 level, so I think you need to watch that very closely. Anything below there really could unwind gold and send it down to the $3,500 level. I do believe that volatility will continue to be a factor here, but if gold can simply go sideways for a while and work off some of the froth due to time—just sitting here and getting the market to accept the $4,000 region as fair value—then it can go higher. An impulsive move to the upside at this point, however, would be one of the worst things you could see, because, quite frankly, you have to ask questions about how long the momentum can keep up.
I don't know if we have topped yet, but we are certainly looking at this as a situation where questions are being asked. And of course, the Federal Reserve possibly not cutting rates in December has thrown a monkey wrench into this market.
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