The market has been very bearish for several months, and we think that may continue to be the overall attitude that we see going forward.
The gold markets have fallen again during the trading session on Monday, as the yellow metal seemingly cannot get out of its own way. We had consolidated for a while, and it started to look like we were seeing a little bit of a basing pattern, but this is clearly not the case now. Granted, we did bounce from the $1700 level, so there is still a little bit in the way of support underneath. After all, the $1700 level would of course attract a lot of attention, so it is not a huge surprise to see that we did turn around from there. Nonetheless, the market seems to be revisiting this area quite often, so I think at this point it is very possible we may crash through it.
If we were to break down below the most recent low that is just below that level, then it could open up a significant move down to the $1500 level over the next several months. This of course is exacerbated by the fact that yields in America have been rising again, as its much more efficient to clip coupons in the bond market than it is to pay for storage in the gold market. As long as that opportunity exists, it is very likely that we will see people favor bonds over gold and therefore we will see this pair drive lower. Further compounding the situation is that the demand for bonds will also drive up the value of the US dollar, which of course is contract is priced in.
On the other hand, if we do see some type of sea change of attitude, we could see buyers jump in on a break above the $1750 level, assuming that it was on a daily close, and of course perhaps closing towards the top of the candlestick. By doing so, that would show a strong reversal of sentiment, which is exactly what this market needs at the moment. The market has been very bearish for several months, and I think that may continue to be the overall attitude that we see going forward. I think at this point it is probably worth pointing out that we recently had the so-called “death cross”, when the 50 day EMA crosses below the 200 day EMA. That is a very bearish longer-term signal, but I also find that quite often it is a bit too late. Nonetheless, that probably has a certain amount of psychological weight on the market as well.