Gold Forecast: Losing Gains to Form Inverted Hammer

Christopher Lewis

I do believe that the way both gold and silver closed for the week, the downside is starting to look more likely.

The gold market initially rallied on Friday but gave back the gains to form the inverted hammer that you see on the chart. This is a very negative sign, and could open up the possibility of further selling. Keep in mind that gold is highly sensitive to the US Dollar Index, so if the US dollar were to strengthen, it probably puts a lot of downward pressure in this market.

On that breakdown, the market is very likely to go looking towards the $1680 level underneath, which is a major support level. That is an area where we have bounced from multiple times, and I think it will be difficult to get below. That being said though, I think a move towards that area makes sense, especially if we continue to see the greenback strengthen. On the other hand, if the US dollar starts to fall, the gold market would turn around and rally.

On a rally, we have to pay close attention to the 50-day EMA, which is at the $1791 level. The 50-day EMA is also sloping lower, and that could come into the picture and offer selling pressure. It is drifting lower, so I think at this point the upside is somewhat limited, and I do not necessarily like the idea of putting a lot of money to the upside. That being said, if we did break down, I would probably get somewhat aggressive, at least until we get to the $1680 level.

Anything below the $1680 level would be catastrophic, and could send this market much lower, perhaps reaching towards the $1500 level. The shape of the candlestick will attract a lot of attention, and I think technical traders will be looking at this as a potential opportunity as well. Expect a lot of noisy trading, but once we break out of this candlestick then we will have a bit more in the way of clarity. If the market were to start to accelerate, then I will add as the trade continues to work out in my favor. I do believe that the way both gold and silver closed for the week, the downside is starting to look more likely.

Gold

Christopher Lewis

Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.

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