Perhaps the gold market is trying to figure out and price in a stronger greenback.
Gold markets initially tried to rally on Thursday but gave up gains to show signs of hesitation. Ultimately, this is a market that I think has to make a bigger decision, with the $1800 level underneath offering a massive support level. It’s worth noting that the $1800 level has been the scene of a “double bottom,” and therefore we need to see what happens in the general vicinity because if it was to be broken down below, that could be a very negative turn of events.
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In fact, if we do drift lower and break down below the $1800 level, then it’s likely that the market could go to the $1750 level, maybe even the $1700 level. That obviously would probably coincide with a strengthening US dollar, and of course interest rates rising again. That being said, we have to pay close attention to whether or not that correlation still exists, because it does fluctuate quite drastically.
The 200 Day EMA is sitting just above the $1850 level, and just below the 50 Day EMA. Both of the moving averages are relatively flat, so I think this is a market that is going to stay range-bound for a while. The top of the range is at the $1880 level, and therefore I think if we were to break above that level, then obviously would be very bullish for gold, opening up the possibility of a move to the $1920 level, and then eventually the $2000 level. That being said, it is going to take quite a bit of momentum to make that happen, so I think at this point we are simply looking at a market that is going back and forth and trying to figure out where we are going to go for the bigger move. I think that will probably be the main theme in the meantime, but it is worth noting that the most recent high was lower than the ones before it.
That doesn’t necessarily mean that we are going to break down, but it does suggest that there is quite a bit of negativity lurking in the shadows. If the US dollar continues to strengthen the way it has, it will obviously be negative for the gold market as well. Perhaps the gold market is trying to figure out and price in a stronger greenback.