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The gold markets rose slightly during the Friday session, to extend the rally that we've seen over the last 48 hours. However, the rally was much shallower on Friday and it was Thursday. Looking at the chart, it is very easy to see why many traders out there would feel that this market is overextended at this point. After all, we have gained almost $150 over the course of 2 1/2 weeks.
Looking at the shape of the candle for Friday, it is a shooting star which is of course bearish. It doesn't look very extended, so we don't think this is anything along the lines trend change, rather a signal that a pullback could be coming.
If you look at the chart, you can see that the $1740 level looks like it could be a significant cluster of support, and as such we think that a fall will first aim for that level. Below there, we see quite a bit of clustering right around the $1700 handle, and then the $1650 level. Because of these four areas, we feel that the gold market will have plenty of buyers stepping in once the markets first pullback.
After all, it is hard to imagine that most traders out there don't feel like they've missed out on something very special as this rally has taken off. With quantitative easing likely to go long for the foreseeable future, gold should continue to rise over time as the US dollar falls in value. Looking at this chart, you can see that it is very obvious that most people out there agree.
It's also helpful that the central banks around the world are net buyers of gold, so this puts a little bit of a natural bid into the market at any moment's notice anyways. With this being said, it looks like this is a "buy only" market at this point in time, and we will use pullbacks that shows supportive action as entrances to this market. We hope to add to our long positions quite often, and expect a significantly large move out of this market, even as high as $2000 an ounce.