Gold Forecast: Showing Signs of Exhaustion

Christopher Lewis

I do think at the very least you should keep your gold position size relatively small, at least until you get a little bit more in the way of confirmation.

The gold markets initially rallied on Tuesday but sold off quite drastically to show signs of exhaustion. This is a market that continues to see a lot of negative pressure, and I think we will continue to see a retesting of the previous resistance barrier at $1835. If we do get to that level, breaking down below that would be extraordinarily negative and could send this market much lower.

On the other hand, we may turn around and bounce from there, which would solidify the idea of gold breaking out. Gold rallying right along with the US dollar is not an impossibility, despite the fact that many retail traders are taught that. The 1980s saw both the US dollar and gold rally, in a very inflationary environment. Whether or not that is going to be the case here is a completely different question, but it is a possibility and I want you to keep that in the back of your head.

The market breaking above the highs of the trading session on Tuesday would be a very bullish sign, perhaps sending gold straight up in the air. The $1900 level is an area that will be a potential target and could be resistive. If we can break above there, then the market would be more or less a “buy-and-hold” scenario, but at this point gold has gone somewhat parabolic until the last couple of days, meaning that we should continue to see plenty of sideways action. After all, markets do not go straight up in the air forever and therefore a little bit of consolidation would be a good thing.

I do think at the very least you should keep your gold position size relatively small, at least until you get a little bit more in the way of confirmation. If you do get that confirmation, then adding to your position will be the best way to play this out. Keep in mind that the real interest rate will have a lot to do with what happens next as well, so with that in mind, you should probably keep an eye on the 10-year note yields as well, because the interest rates spiking could cause a certain amount of trouble in this market as well.

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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