The gold markets did very little during the trading session on Tuesday as we continue to dance around the $1781 level. That is a good sign, though, because at least we have stopped falling, which is the first step to some type of recovery. It should be noted that the $1750 level underneath should be supportive, due to the fact that it was previous resistance. With that being the case, a certain amount of “market memory” comes into the picture and this would be an area that a lot of people would be paying attention to.
If we were to break down below the $1750 level, then it could open up even more selling, perhaps reaching towards the double bottom which sits just below the $1700 level. The market had seen a lot of buying in that area, but it certainly seems as if we are looking to get down there if we can break down through this next support barrier. On the other hand, if we turn around and break above the 200-day EMA, which sits at the $1811 level, the market then will likely try to fill the gap that extends to roughly $1860 above.
The US dollar has a direct negative correlation to this market, so it is very likely that we would see the US dollar falling as a sign to start buying gold. The question now is whether or not we can break above that gap.
If we can break above the gap, then it is likely that we could go looking towards the $1910 level, which was the most recent high. If we can break above there, then the market is likely to go looking towards the $2100 level, which is an area where we have seen the market reached towards recently, and I do believe would be the longer-term target for those who are very bullish of gold. That being said, if the market were to break down below the double bottom underneath the $1700 level, it is likely that we could drop all the way down to $1500.
