Ilczyszyn: Key Levels to Watch on Gold

King dollar for a day.

Ilczyszyn: Key Levels to Watch on Gold
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If you can get the dollar right, you'll get a lot of things right, including gold. Remember that all commodities are priced in dollars: Dollar up, commodities down.

The price of the precious metal fell early Friday, leading some to think it could produce a second consecutive weekly loss. After the price of gold recovered from Monday's low at $1,729, gold traders put emphasis on the currencies heading into the European Union summit. As it looks now, another summit will come and go with little more than hot air being produced.

(Watch: Currency Trade Amid EU Summit)

So what are the key levels to watch?

Rallies were weak once gold was trading above $1,750, finding little to no bidding for a follow-through against major resistance at $1,757. The market is currently trading at $1,735 with a low of $1,732.4. There is a major support pocket at $1,729 - $1,731 that not only correlates with this week's low, but with several retracement levels. A close below here will be very bearish, with only the 50-day moving average that sits at $1,720 and light support at $1,717 being the last levels left before a likely test of $1,700. Stronger U.S. economic data has indeed put pressure on gold.

Please do not get me wrong – I am looking and giving this market an opportunity to hold this week's lows, but without any mojo in this market, traders must know their risk below $1,729 and adjust accordingly. At this point, traders should simply not be married to any position. A hold and a close back above $1,738 will be encouraging to the bull camp.

So what's my trade?

I'm buying a correction at $1,721 with a sell stop $1,715. This trade will expire Friday if not filled.

What Rich is Watching

Gold / US Dollar Spot

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