Gold does look rather sickly, but if we can wipe out the losses of the trading session on Wednesday that would be a huge victory for gold bulls.
Gold markets got hit during the trading session on Wednesday, breaking down below the crucial $1850 level as the statement coming out of the Federal Reserve suggests that perhaps they will be tightening rates sooner than originally thought. Now the question is whether or not that actually means anything.
This made rates rise in the bond market, and the US dollar strengthened, so in both of those scenarios you would see pressure on gold. With that being said, what we have seen during the day makes sense, as we can see the market breaking below the 50-day EMA as a way of protesting the idea of higher rates and/or higher greenback. Nonetheless, there is plenty of support underneath, especially near the previous downtrend line and the 200-day EM, as they are essentially sitting at the same place.
A pullback does make sense, and as long as we can stay above the 200-day EMA, I think there are enough buyers out there to keep this market somewhat afloat. However, if we were to break down below that indicator on a daily close, that could open up fresh selling and could even push the gold market down to the previous double bottom which is closer to the $1700 level. On the other hand, if we were to turn around and recapture the $1850 level, then I fully anticipate that the market would head back into the previous consolidation area that I have marked on the chart. Gold does look rather sickly, but if we can wipe out the losses of the trading session on Wednesday that would be a huge victory for gold bulls.
In the meantime, I would anticipate a lot of noisy trading based upon the market throwing itself into a panic because of the potential interest rate hike in two years coming out the United States. That is just as ridiculous of a reaction as it sounds coming out of my own mouth, so I think this might be a short-term phenomenon. Nonetheless, keep an eye on that 200-day EMA, as it could lead the way going forward. I would also suggest keeping your position size rather small until we get a bit more in the way of clarity.