The gold market’s big question: Deal or no deal?
Like the stock market, gold is expected react sharply to the outcome of the debt ceiling impasse. But unlike stocks, gold tends to do well in fear-inducing situations. So if there is no deal on the debt ceiling over the next few days, then gold will rise—but if we get a deal before we hit the ceiling, then gold will drop.
Gold broke major support levels in early Friday trading but failed to follow through to the downside after putting in a low of $1,259.60—the lowest level since July. Investors showed support for the metal as Washington headed into a deadlock, but after it failed to rally when it had every reason to do so, investors fled to better-performing assets.
(Read more: Gold's plunge blamed on one massive sell order)
As Washington's stalemate continued Monday, gold was finding a modicum of support, trading back above the key level of $1,278.10. A close above here, and furthermore $1,285.90, will signal a consolidation higher. Only a close below $1,271.80 will signal a trade lower in the more intermediate term.
My advice now is to play the levels. Gold has fallen dramatically of late, and we expect to see a consolidation higher through the first half of the week.