iiTrader Founder & Chief Market Strategist Rich Ilczyszyn reveals key levels he's watching during Thursday's session to determine whether or not gold is trying to make a bullish breakout.

Ilczyszyn's Analysis

Gold pulled back to hold a higher low at $1676.2 Wednesday night as the market chopped around.

Today, gold must move through the $1684.9 highs, which is also where a secondary trend line sits. After hitting this wall all week, futures and commodities traders will start to get jittery and look to exit longs or outright sell without a further move higher.

Although U.S. lawmakers are waging a high stakes battle over how much the government can borrow, analysts told CNBC that a debt ceiling showdown may not have a cataclysmic effect on markets.

Barely two weeks after Washington narrowly steered the economy away from the "fiscal cliff" — mainly by postponing a resolution until March — some investors are already becoming rattled by the prospect of a new battle over the debt limit.

Platinum prices rallied to three-month highs on Tuesday after the number one producer of the metal, Anglo American Platinum, said it would mothball two South African mines and sell another, cutting output by around 400,000 ounces.

Is gold getting ready to rip?

Reports that Germany intends to repatriate the gold that is being stored at the New York Federal Reserve should be supportive for gold prices. The implication here is that trust in fiat currencies is being eroded by central bank involvement. Japan's recent policy change toward a weaker yen, coupled with the Federal Reserve's ongoing bond purchases, is making gold a more attractive asset.

Corn inventories came in at an alarmingly low rate in last week's release from the U.S. Department of Agriculture. The January 11 report showed inventories at 8.03 billion bushels, below the predicted 8.22 billion.

Will WTI crude regain its status as the benchmark for crude prices?

About two months ago, the U.S. Department of Energy started using Brent crude as its benchmark for crude prices. It appears WTI could soon be the benchmark again, though.

Over the last several weeks, the spread between WTI crude and Brent has come in from Brent to being $23 over the WTI price to under $17 over on Friday.

It is no coincidence that this price movement has happened right at the time Seaway pipeline announced plans to expand capacity of the line that takes crude from Cushing, Oklahoma where WTI is delivered to the Gulf of Mexico. This pipeline is now carrying roughly 280,000 barrels a day and by the end of the month, the number could increase to 400,000 barrels a day.

Earnings season gets into full swing this week after a few notable companies released their quarterly results last week. This week promises to be much different, though, as quite a few large cap companies in the S&P 500 index are scheduled to report earnings in the days ahead.

Now why does a commodity trader care about earnings?

To start, the results will affect movement in both S&P and Nasdaq futures. It also gives traders a read on the mood of the country, how consumers are spending and how companies are preparing to move forward. In my opinion, all of will can effect prices and demand for commodities.

On Tuesday, home builder Lennar will make an earnings announcement. Look for copper to react to the results. The focus will then shift to the banks Goldman Sachs and M&T Bank scheduled to report on Wednesday, Bank of America set to deliver earnings on Thursday and an earnings report from Morgan Stanley on Friday. Elsewhere in the market, American Express will report on Thursday and General Electric to announce its quarterly results on Friday.

Bank earnings are expected to be OK, but with all the stimulus going on, I am not surprised by that. Record amounts of money have been flowing into mutual funds and confidence seems high, but with the debt ceiling debate firing up and earnings reports so far mixed at best, I think the market will have a hard time holding onto the gains that it's made since January 1.

As it stands now, the S&P is up against some major resistance and up against 5 year highs at 1,472.12. The March E-Mini contract shows resistance at 1,474 and 1,483 with support levels at 1,450 and 1,428.

Gold traded through major resistance at $1,666.5 yesterday – a significant level, because it's where the 200-day moving average hits. It went on to extend itself above retracement levels to reach a high of $1,678.8. This high runs into the resistance trend line from a falling wedge created by the highs and lows in November.

This morning we are seeing the gold market pull back and consolidate above $1,666.5. A close above this level is very important for the bull camp.

So that's the technicals. What else is driving the gold market?

Higher-than-expected inflation numbers from China weighed on crude oil futures Friday. Why? Well, the theory is that China will have considerably less room to ease if it is faced with inflation.

Brent crude oil rose more than $1 to a 12-week high on Thursday after news of a sharp cut in Saudi oil production, an explosion in Yemen that halted most of the country's oil exports and bullish Chinese trade data.

Saudi Arabia cut its crude oil production by about 700,000 barrels per day (bpd) over the last two months of last year, with December output at around 9 million bpd, an industry source familiar with Saudi oil policy said.

The world's largest oil exporter produced 9.025 million bpd in December, down from 9.49 million bpd in November and more than 1 million bpd below its peak production last summer.

Flows of oil through Yemen's main crude export pipeline stopped on Thursday after it was blown up by unknown attackers, government and oil industry officials said.

On the demand side, strong Chinese trade data raised expectations that an economic recovery in the world's second-biggest oil consumer would drive fuel consumption higher.

Brent crude rose $1.53 to a high of $113.29, its highest since Oct. 18, before easing back to trade about 0.5 percent higher at $112. U.S. crude last rose 1 percent to trade at about $94 a barrel.