Gold Forecast: Looking Frightened by the USD Strength

Gold markets initially tried to rally during the trading session on Tuesday as liquidity came back into the market. Keep in mind that the Monday session was Labor Day and the United States, so this is part of why we did not see much in the way of momentum in either direction. However, as the market tried to take off initially during the trading session on Tuesday, we found the $1725 level to be resistance. This is an area that we have seen action in previously, so it should not be a huge surprise.

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Underneath, we have a certain amount of support on the $1680 level, and I think that area will continue to be crucial. If the market were to break down below that level, then we would almost certainly see gold drop lower, perhaps down to the $1500 level where we have seen a lot of action previously. On the other hand, if we were to turn around and rally from here, breaking above the top of the candlestick for the Tuesday session, that would be bullish and open up the possibility of a move to the 50-Day EMA. This is currently sitting near the $1760 level.

Pay Close Attention to Bond Markets

• The only thing I think you can count on is a lot of noisy behavior, and of course that makes quite a bit of sense considering that the gold markets are highly sensitive to bond markets.
• As long as bond markets continue to be very noisy, then is difficult for gold traders to get a handle on how things are going to be moving.
• As interest rates continue to rise, that will put downward pressure on gold as it’s easier to simply hold paper than it is to pay a significant amount of money for storage.

Furthermore, you should keep in mind that there is no yield to be had on gold, so as long as there is yielded to be had in the bond market, it will be much more attractive than gold. Ultimately, I think this is a “fade the rally” type of market, especially as the Federal Reserve is going to continue to be very tight with monetary policy. That being said, follow prices and therefore it’s likely that we see quite a bit of fake outs. Keep your position size small.

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