The gold markets fell again on Tuesday as we continue to see a lot of negativity out there. Quite frankly, this is a market that given enough time I think we will probably chip through the bottom here, especially if the Federal Reserve does in fact start tapering at an accelerated rate. If they were to do that, that will drive rates higher in the United States, thereby making the real rate of return on bonds a lot more attractive. If that is the case, then you almost always see gold markets get punished as a result. I do think that given enough time we probably see this market test the major support level just below.
If we were to break down below the $1760, then I think we probably go looking towards the $1750 level, followed by the $1725 level. Obviously, that is a relatively big move, but considering that we could be seeing a major shift on the part of the Federal Reserve as we head into the holidays, the combination between monetary tightening and thin liquidity could cause major problems. The gold markets are notoriously thin to begin with, so this obviously causes an even bigger issue here.
To the upside, the 50 day EMA has just broken below the 200 day EMA, forming the so-called “death cross”, but the 50 day EMA indicator just started to look negative, as the two indicators were very flat as of late. I anticipate that that will probably continue to be the issue. The fact that the market just does not roll over and die is somewhat encouraging, but at the end of the day there is an obvious barrier just above, perhaps circling around the $1800 level that has been almost impossible to overcome. Because of this, it is very likely that this market will continue to be a “fade the rally” type of situation going forward. This will be especially true if the US dollar suddenly spikes, and at this point in time that is a very real possibility if the Federal Reserve does suggests tightness. Expect choppy behavior, but at this point I am not willing to buy gold, even though I would fully anticipate a short-term bounce on intraday charts.
