A top or a bottom in a market is not a price – it's a process.
The metals market had a wild ride last night. Gold rallied as news hit that a tax would be levied on bank savings in Cyprus. The safe haven trade took the driver's seat, as traders and investors alike jumped into gold, leading the metal to post a high of $1,607.60 before reversing course back down to the low of $1,589.60 .
So what can we take away from this?
Expect the trade to continue to be volatile, as the news may drive the market.
The euro hit a new low for the year, and the dollar index was able to retest above 83. Although gold priced in dollars finds it tough to push higher with a stronger dollar, this is one of those cases where money shifts out of equities, and gold gets used as a currency. The high last night was $1,607.6, as stops were hit above $1,600. We have seen a slight pullback heading into this morning, as the market currently sits at the psychological $1,600 level.
A close above last week's $1,598.9 high will be important for the bulls; a failure to do so may lead traders to believe that this was only a knee-jerk reaction with a failed follow-through. After a volatile Sunday night that saw gold trade in a nearly $20 range, there was consolidation just above $1,594, and this will be viewed as solid support today. A retest of last night's swing low of $1,589.6 will be discouraging to the bull camp, and a close below there will be bearish.