Gold markets fell rather hard on Wednesday, slicing through the 50-day EMA like it was not even there. This is a very negative sign, and it looks like we are going to continue to see a lot of selling pressure when it comes to the gold market, as the tapering announcement from the Federal Reserve does suggest that perhaps rates will go higher on the 10-year note. That being said, the market is likely to continue to see the liquidity measures as the biggest game in town, with the idea of the gold markets acting in a negative correlation to rising rates.
The 200-day EMA sits above, just as the 50-day EMA has now been sliced through. Because of this, it certainly looks as if there is a real shot at this market going lower, with the $1750 level offering a significant amount of psychological and structural support. Breaking through that level then opens up the possibility of a move towards the $1725 level. Regardless, it certainly looks as if the downside is still the favored momentum that you should be dealing with, but we might be a little overextended at the end of the day. I think you probably need to look for short-term rallies that you can sell into, at least at the first signs of exhaustion.
If we were to turn around and take out the highs from last week, then it is possible that we could see the gold market really start to take off to the upside. If that happens, then I would be paying close attention to the $1835 level, as it is an area that has seen massive amounts of resistance previously, so a break of that area would turn the gold market into a “buy-and-hold” type of situation. The market continues to be very erratic, but as you look at the longer-term charts, you can clearly see that there is a bit of a descending triangle that we have been working with, and I think that is something that you need to be very cognizant of. The descending triangle is huge, but it certainly has been adhered to for quite some time and therefore that downtrend line continues to be crucial.
