Gold markets initially rallied on Wednesday but gave back quite a bit of the gains and then started to fall apart from there. The $1750 level above has been a significant area of interest that we have seen for quite some time, and it is likely to show a lot of resistance based upon “market memory.”
The candle is closing towards the bottom of the daily range, which opens up the possibility of a move down towards the massive support level at the $1680 level. The gold market continues to struggle at the hands of the interest rates in America rising, making it cheaper for traders to hang onto paper in the form of bonds instead of picking up gold and paying to store it. Most traders forget that the big money that moves this market has to pay for storage when it comes to metal, so they forget that it is not just a simple transaction that is “anti-US dollar.” When we have interest rates rising, it becomes significantly cheaper to simply hang on to the bond.
The shape of the candlestick is very negative, and it is likely that we will continue to see momentum. At this point, rallies will be faded, and I will take advantage of any signs of exhaustion. If we were to break down below the $1680 level, then the market could very well drop towards the $1500 level. Rallies at this point are not that interesting to me, but if we were to turn around and take out the 50-day EMA, then it is likely that we could go higher. We would also need to see the interest rates in America start falling precipitously, something that does not look likely to happen in the short term. I would anticipate a bounce, but I would simply step out of the way and take advantage of “cheap dollars” on that rally. I believe that we are starting to see a fairly big move to the downside, and I plan on taking advantage of it. The market sees no reason to rally for a longer-term move, so at this point I think we have to retest that crucial level underneath, which I think is where the next major fight is going to be.
