- The trading landscape experienced a stark downturn on Tuesday, as American interest rates surged once again. Such a development inevitably exerts downward pressure on the gold market.
- However, gold's fortunes are not solely determined by economic factors; geopolitics can also serve as a catalyst for its rallies.
- As the situation in Gaza stabilizes, or to put it more accurately, refrains from entangling additional nations, gold begins to shed some of the allure it boasted just a couple of weeks ago.
Moreover, it appears that traders might have become overly optimistic in their expectations of a more lenient monetary policy from the Federal Reserve. Consequently, it's imperative to reconsider the entire scenario. To be clear, gold retains a certain degree of appeal at this juncture, but it is essential to acknowledge that we had allowed expectations to run too far ahead of reality. The fact that we encountered resistance near the $2000 level should not have come as a significant surprise.
Beneath the surface, the 50-Day Exponential Moving Average looms around the $1950 mark, representing a probable support level and an area that witnessed prior market activity. Anticipate the market to garner some interest in this region, and should we witness a rebound, it might present an opportune moment for buyers to step in. A breakdown beneath this level would likely propel the market towards the 200-Day EMA, situated beneath, possibly even reaching the $1900 level.
Be Prudent in Position Sizing
The strength of the US dollar can also exert influence on gold, but it is essential to note that both assets can appreciate simultaneously, contingent on the prevailing circumstances. Consequently, the current environment remains characterized by erratic trading patterns, necessitating prudence in position sizing. Furthermore, traders should maintain a realistic timeline, recognizing that if they accrue profits over a couple of days, it is probably prudent to secure them. Presently, this is not an ideal market for swing traders. Nevertheless, as clarity emerges from this pullback, the prospect of witnessing a $50 price movement becomes a distinct possibility. In that scenario, I would be much more aggressive in my positioning. Until then, its more likely to feature choppy behavior than anything else at this point.
We are in a world that has two realities: the one in the economy and the central banks, and the traders that have been raised on nothing but cheap and free money. We are seeing a major change in how the market will operate for the foreseeable future. This is why gold has no idea what to do.
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