Sometimes it is easier to trade what is instead of what should be, and this might be one of those times
The gold market got absolutely hammered on Monday to kick off the trading year. In fact, we had broken out last week in what looked like was going to be a change in overall attitude, perhaps sending gold going much higher, as the $1820 level had been so crucial as far as selling pressure has been concern. However, once the volume came back on Monday it was obvious that gold has nowhere to be.
We are closing at the bottom of a very ugly candlestick, which suggests that we have much further to go. We are closing right around the $1800 level, as well as the 50 day EMA and the 200 day EMA. It would not be overly surprising to see a little bit of a bounce from here, simply because we had fallen so hard, losing over $30 an ounce. However, any bounce at this point would have to be looked at with extreme suspicion as the type of brutality in this move on Monday very rarely happens in a vacuum, especially when you close at the very bottom of a massive candlestick like this. In other words, gold is going to continue to struggle going forward.
When you look at couple of weeks back, all of the largest candlesticks are all red, and it looks like we are about to kick that move off again. Underneath, the $1775 level offers a bit of support, but quite frankly there is nothing on this chart that tells me we cannot get below there now. This is an absolutely horrible candlestick to kick off the year, and if you are bullish of gold this is the last thing you wanted to see.
There is the negative correlation with the US dollar, and the US dollar did have a positive session. However, the selloff in the gold market is far beyond what is warranted due to the Forex influence. There is something bigger going on here, and it is obvious that gold is not a preferred asset at the moment. Sometimes it is easier to trade what is instead of what should be, and this might be one of those times. Regardless, the most important thing on this chart right now is recognize that the big candlestick like this very rarely happens as a “one-off.”