The gold markets have fallen quite a bit during the trading session on Tuesday to reach towards the $1750 level. That is an area that of course is crucial, as it had previously been so resistive that there should be a little bit of “market memory” in this area. Because of this if we break down below that level it should suddenly become resistance, and it is very likely that we would go looking towards the double bottom underneath which is sitting at roughly $1675.
To the upside, I see a significant amount of resistance in the form of the $1800 level, and it is probably worth noting that the market had plenty of opportunities to overtake that level during the last couple weeks and came nowhere near actually doing it. With that in mind, I think we continue to see cold drop, as traders currently seem to favor bond purchases instead of gold in order to protect against volatility and perhaps even inflation. As long as that is the case, gold is going to continue to suffer.
One thing being said though, if we break above the 200 day EMA, then it is possible that we go looking towards the top of the gap, which is closer to the $1860 level. Breaking above that level would then open up the move towards the $1900 level, and then beyond. If we break above the top of the gap, then it is likely that we will see a lot of money flowing into the gold market at that point as it is such a significant break out just waiting to happen. In fact, I would consider that as a very likely trend change for the longer-term move.
The one thing you can probably count on is a lot of noisy trading, and therefore it is likely that you need to keep your position size relatively small, at least until we get some type of clarity when it comes to where we are going next. I think at this point though, it certainly looks as if there is a lot of downward pressure in this market, and unless things change drastically, this could be a very negative move just waiting to happen. Unless you are a short-term trader, it is difficult to put a lot of money to work in this market, but clearly, we are getting closer to a big move.
