Crossing to the strong side of the 50-day moving average at $4565.35 is another story. That move will likely generated the upside momentum that speculators want to see, big money and fast. But that type of move could also blow out the flame pretty fast since there are still major headwinds like the long-term retracement zone at $4541.88 to $4744.34 and the major swing top at $4891.54.
If this current short-covering fizzles out, then look for a pullback to at least $4196.76. The first rally from a major low is typically short-covering. In other words, nothing is really added, but something is taken away. A retracement to $4196.76 will offer bullish traders a chance to buy at their price. That’s true dip buying.
Essentially, the market is asking traders to chase the market through $4369.66, or wait to passively bid at a more favorable price level.
What to Watch
Warsh’s press conference will decide gold’s next move. The 8% rally off the six-month low is short-covering. It needs a reason to become something more. A patient Warsh talking about productivity and data dependence gives buyers confidence to take out $4,369.66 and target the 200-day at $4,457.94. A hawkish Warsh locking in on persistent inflation sends this rally back to $4,196.76 where the real dip buyers are waiting.
The Iran deal is the background driver. As long as crude stays lower and the deal stays on track, the inflation argument that crushed gold last week keeps losing force. If the deal falls apart, that changes overnight. But the market is trading the deal as done and Warsh is the near-term catalyst. Gold is compressed and the breakout starts this afternoon.
If you’d like to know more about how to trade gold, please visit our educational area.
