Gold markets initially rally during the trading session on Thursday to reach towards the same resistance barrier that we have been fighting for several sessions. Furthermore, you can make an argument for the downtrend line coming into the picture, and therefore I think a lot of traders will be paying close attention to this overall region. By giving up the gains the way we have during the trading session on Thursday, this suggests that we are going to continue to see selling pressure.
That being said, the 200 day EMA is currently sitting just below the market price, so it does suggest that we are more than likely going to see a little bit of support. Furthermore, we had formed a strong hammered during the previous session, so that does suggest as well that we are trying to figure out a bigger move. In the short term, it looks as if we are going to continue to bounce around in a relatively tight range, which is typically what happens when you form a hammer and a shooting star side-by-side. The question now is which direction we break?
If we break to the upside, and clear the last couple of days, it is likely that the market goes looking towards the $1835 level. This is an area that has been resistance more than once. In fact, this is a market that has seen that area to show its importance quite drastically, so breaking above that level would send the gold market skyrocketing. On the other hand, if we break down below the 50 day EMA it is likely that we go looking towards the $1750 level, possibly even the $1725 level. At that point, I would anticipate that this market could really start to accelerate to the downside as it would be such a major change in attitude.
At this point in time, it is simply a matter of waiting to let the market tell you which direction it wants to go in and following it. Furthermore, I would also keep my position size somewhat small, and then only add as the market continues to move. That being said, I do think that we have a nice opportunity presenting itself soon, but unfortunately it is not present quite yet. Keep an eye on the US Dollar Index, because it has a significant negative correlation as well.
