The gold market initially tried to rally towards the $1800 level on Wednesday but gave up the gains to form a bit of a shooting star. This is yet another negative sign in this market, suggesting that perhaps more pain is ahead for the gold bulls.
We have recently seen the market gap lower to crash below the 200-day EMA indicator and then continue going much lower. At this point, the 200-day EMA certainly looks as if it is going to cause a significant amount of resistance, because not only will the 200-day EMA itself attract attention, the fact is that there is a major gap above that would also offer a certain amount of resistance.
Because of this, I think that the key here is two different levels. The first level is the 200-day EMA, and breaking above that level, we could go looking towards the top of the gap which is at roughly $1860. That is obviously the bullish case, but we need to see the US dollar get hammered for that to happen. Furthermore, bond yields would need to come down quite drastically. For the second level, I look at the $1750 level, an area that previously had been significant resistance in what should now be support. With that in mind, if we were to break down below that level, I think we could go looking towards the “double bottom” from three or four months ago, which is sitting just below the $1700 level.
One thing I think you can count on is a lot of volatility, as the Federal Reserve has shocked the system by suggesting that perhaps there could be a little bit of tightening coming down the road. Nonetheless, gold markets were in a very bearish trend to begin with, as we have fallen from the $2100 level. I do like gold from the longer-term standpoint, but right now it certainly needs to spend some serious time building up a base for a bigger move. There is nothing on this chart that tells me it is time to start buying anytime soon, other than perhaps an opportunity to pick up a short-term buying opportunity to fill that gap above. Once we get above there, then I can start to look at a longer-term trade, but right now I think there are far too many risks.
