Gold Forecast: Markets Form Inverted Hammer

Christopher Lewis

This is a market that has been in an uptrend for a while, but this last selloff has been quite brutal.

The gold markets rallied significantly on Friday but gave back the gains to show signs of exhaustion. The candlestick is a very negative-looking one, so if we can break down below the candlestick from the Thursday session, I think this market will fall apart. The $1750 level needs to hold for gold to have any hope of a rally. Things are looking rather dire right now, but it will be interesting to see how we open up the week on Monday.

If we do break down below the $1750 level, my next target would be the $1725 level, possibly even the $1680 level after that. The $1680 level is going to continue to see a lot of buying pressure, where we had bounced from multiple times. That is an area that I think will attract a lot of attention, and it is possible that buyers would jump into the market to push things back to the upside yet again. I think that would be an excellent value proposition, but we need to get there first.

If we were to break down below the $1680 level, it is possible that we could drift all the way down to the $1500 level rather rapidly. That is a large, round, psychologically significant figure, which would attract even more attention. This is a market that has been in an uptrend for a while, but this last selloff has been quite brutal. I anticipate that will go lower, and you will need to pay attention to the US dollar which has a huge negative correlation to the gold market itself.

The market would need to take out the nasty candlestick from the Thursday session in order to go higher, perhaps taking out the $1800 level. At that point, we would be looking at a move towards the $1835 level. That seems to be very unlikely though, and as a result I am looking for an opportunity to short this market any chance I can on signs of exhaustion or perhaps even a breakdown. With this in mind, I think that the US dollar is a big driver of where we will go next more than anything else. Furthermore, if interest rates rise in the United States, it is likely that it will continue to break down the strength of gold, assuming it even has any at that point.

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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