The gold markets fell for much of the Friday session, only to turn around and bounce back up. The resulting candle was a hammer, and it shows that perhaps the bulls are coming back into the market in order to push prices back up. The long term trend certainly agrees with this, and we think that the trend is going to continue into the foreseeable future.
The $1,650 level looks very supportive now, and we think this hammer is the start of a run back to the $1,800 level. The $1,750 level in the interim will offer resistance, but it should only be minor at best as the overall trend has been up for over 10 years now. With the economic situation so uneven around the world, there are various reasons for people in various countries to want to own gold at this point in time.
The central banks around the world continue to either print money, or simply flood the markets with easy money. This is always a great environment for the gold markets, and if you add the fact that many of the world’s central banks are currently net buyers of the yellow metal, this should add up to higher prices going forward. In fact, until we break below the $1,500 level, it is hard to think of any fall in this market as nothing more than a pullback, and pullbacks are bought in an uptrend.
The breaking of the top of the Friday highs would be our signal to add to our already net long position in this market. The breaking of $1,750 would have us adding yet again as it would show real strength in this commodity. As the European situation continues to grind along in the markets, we see that the need to own gold will be strong for investors as the Greek default is a major reminder of what can happen. Next, many people will wonder what is going to happen in such places as Italy, Portugal, Ireland, and Spain. Of particular concern is the Portuguese bonds markets, as the yields are sky high at the moment. We only buy gold, and will certainly do so if we get higher than the Friday high.