The gold markets have broken down a bit during the trading session on Tuesday to slice down through the $1700 level again. We reached towards the previous lows but have recovered slightly towards the end of the session. That being said, we have plenty of momentum to the downside and it is worth noting that we are closing at about 80% of the length of the body of the candle. In other words, there could be significant follow-through.
At this point in time, the closer we get to the 2% level in the 10 year Note, the more likely we are to see the gold markets get absolutely crushed. The strengthening US dollar is toxic to the gold market, and of course those yields are much more dangerous than anything else. You can clip coupons in the bond market instead of paying for storage when it comes to gold, and as long as nominal returns are positive, it makes quite a bit of sense that the bond market would be a preferred way to invest. This is one of the biggest problems gold has had over the last several months, as the rate of change in yields has been very rapid.
If we do break down below the most recent lows, which is extensively the bottom of the daily candlestick, then it is likely that we go looking towards the $1600 level really quickly, and then after that the $1500 level where I anticipate seeing even more support. That is an area that is a large, round, psychologically significant figure that a lot of people will be paying close attention to. At this point in time, I would anticipate a significant amount of support in that general vicinity, but if we were to break down below the $1500 level, we could be looking at a move to the $1300 before it is all said and done.
To the upside, if we were to break above the $1750 level, then we could go looking towards the $1800 level where the 200 day EMA currently stands. That of course is a longer-term resistance barrier, but at this point in time I think we are going to continue to see more negative pressure than positive, so though majority of movement in this market is probably going to be fading short-term rallies.
