The gold markets looked like they were going to crash in a big way on Friday, but they turned dramatically and formed a huge hammer. This is technically an upward signal, Especially considering where it was formed. The $1800 level is an area that has been important more than once, so a bounce from there and forming a hammer is a very strong sign. If we can break above the top of this hammer, this is a strong enough sign that some traders will enter the market and try to buy gold again.
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On a breakout, I would expect the target to be at the $1,880 level. This is an area that has offered resistance more than once, So I think we can see a little bit of difficulty in this general setting. However, the market may get there very quickly, as gold tends to make sudden and erratic movements.
Pay attention to the 10-year bond yields, because if US interest rates start to rise again, it will work against the value of gold. Higher interest rates make the US dollar more attractive, and this works against the price of gold, which is priced in the same currency. Moreover, traders prefer buying paper rather than paying to store huge amounts of gold. Anytime there are returns, gold is somewhat weak.
It looks like the market is ready for a bounce, so it looks like short-term trades are in place. However, if we break below the bottom of the hammer, it is very likely that the market will lose $100 fairly quickly. Gold has been extraordinarily volatile, but in the inflationary environment in which we find ourselves, it may only be a matter of time before gold has a good day. I don’t know if Friday is a big turnaround, but it certainly looks like it could be the start of something. Anyway, with the kind of volatility we’ve seen in multiple markets, you should be careful about your position size, especially in a market with a low trading volume. Furthermore, you should keep in mind that Monday falls on the Independence Day holiday in the United States, so volume is likely to be somewhat of an issue. Electronic trading will of course be available from time to time, but it is not a regular session.