Gold markets broke down a bit on Wednesday as we threatened to take out the support underneath. That being said, by the end of the day we started to see a little bit of a recovery, so it will be interesting to see what happens next. This is an area where I would anticipate a lot of value hunting going on, and in the inflationary environment that we find ourselves in, it would make sense for people to be interested in gold.
When you look at the longer-term chart, the $1880 level is an area that has been supported and resistant multiple times, so I think it is probably only a matter of time before buyers come in. That being said, if we were to break down below this level, then it is likely that gold will go down to the 200-day EMA, which is currently at the $1857 level. The 200-day EMA would offer technical support, and if we were to break down below that level it would almost certainly unleash a massive amount of selling pressure.
On the other hand, if we were to take out the highs from the Tuesday session, we could likely go looking to reach the 50-day EMA which is currently at the $1924 level. The market has tried to break down, but we are essentially at the bottom of a larger consolidation area, which is between the $1880 level and the $1970 level. The US dollar has been rallying at the same time, but that is not necessarily a problem, considering that interest rates are rising in America due to inflation. In other words, both of them are being used for wealth preservation at this point.
The size of the candlestick during the trading session on Wednesday was not overly drastic, so I do not necessarily think that we have to worry about whether or not it tells us anything other than we tried to break through to the downside but failed. If we break down below the $1880 level, that could open up a flood of fresh selling and send this market much lower. It will be interesting to see how this plays out, but right now it looks like value hunting is trying to come back into the market late during the session.
