Gold markets gapped lower to kick off futures trading Tuesday morning, only to turn around and fill that gap. After that, the market then fell to break below the crucial $1850 level. At this point, it looks as if the gold market is going to continue going lower, perhaps falling drastically given enough time. The $1800 level looks to be the target next, and with the crucial CPI figures coming out on Wednesday, that could be the catalyst.
The Consumer Price Index coming out of the United States is a major indicator of inflation, which is expected to be hot. If it comes out extraordinarily high, then it is likely that the markets will anticipate that the Federal Reserve will become extraordinarily aggressive with its tightening policy, which is what has been driving bond yields higher, and gold lower right along with them. At this point, is becoming a bit of a “feedback loop”, so the CPI number will be the next major influence as to what happens next.
From a longer-term standpoint, you can make an argument that breaking below the 200-day EMA is a signal that we are starting to see even further weakness, so technical traders will be looking to short this market as well. Even if we do rally from here, I anticipate that the market will probably have to pay close attention to the reaction immediately after the breakout to the upside because there is so much in the way of noise between the 200-day EMA and the 50-day EMA which is sitting at the $1912 level and falling.
The market has been falling lower for quite some time, and it does seem like we are on the precipice of something big based on the momentum, which is why think Wednesday could be so crucial for gold. If we were to break down below the $1800 level, then the market will more than likely start to unwind quite drastically at that point. On the other hand, if we were to break above that 50-day EMA, it is likely that we could see gold try to make an attempt to the $1970 level, but that seems to be the most difficult move to make, so I do think that rallies will more than likely be sold into, as we continue to see quite a bit of bearishness.
