Gold markets got absolutely hammered on Monday to reach down towards the 50-day EMA at the $1807 level. This is a market that suddenly finds itself on the back foot, and it could have perhaps been exacerbated by Jerome Powell being renominated for the position of chairman. After all, if the Federal Reserve now looks likely to continue the tapering process, that should continue to bring the value of the US dollar higher. Interest rates will continue to rise as a result, and that weighs upon gold in general.
Gold markets typically run on momentum, and the fact that we have fallen so hard certainly suggests that gold has further to go to the downside. Rallies at this point in time will almost certainly be sold into, so that is something worth paying attention to. I believe at this point we will have to be very cautious about the overall position sizing, because there will probably be a significant bounce over the next day or two. However, the $1835 level is an area that you need to pay close attention to, as it had previously been resistance. “Market memory” could come into play and offer resistance yet again. If we break down below the 200-day EMA, that could also be a very negative turn of events and send this market to much lower levels.
I do believe that buying gold would take a lot of courage at the moment, but if you do choose to do so, please keep your position size relatively small. There is a lot of clustering underneath that should prevent a simple slice through to the downside like we had seen during the day on Monday, but gold does tend to be very thin at times, so we can get the sudden moves, especially in the middle of the night. Regardless, the trade that you take now should be done in small increments, only adding as it works in your favor. The question is whether or not we have just seen another top. I think we will get some type of answer to this question soon, but if the Monday candlestick is anything to read into, we could see some very negative behavior. Pay close attention to the 10-year yields, because if they continue to rise that will work against gold as well.
