The gold market has broken significantly during the trading session on Thursday to test the $1700 level. The $1700 level is a large, round, psychologically significant figure, and an area that has caused quite a few problems in the past. We have bounced from there rather significantly multiple times, but as you can see based on the candlestick for the trading session on Thursday, there is still plenty of negativity.
I think at this point in time you need to look at this as a “fade the rally” type of situation. After all, the market is very likely to see plenty of US dollar strength, which of course keeps a lot of downward pressure on gold. The $1750 level could be a significant resistant barrier, and I think it’s going to take quite a bit of momentum to finally break out. However, even if we break above there, then we have plenty of resistance at the $1800 level. The $1800 level is a large, round, psychologically significant figure, and then of course the previous uptrend line sit there as well. Because of this, I think this is a market that’s going to struggle to get above there.
So now the plan is to pay close attention to the US dollar and the strength that we continue to see there. After all, the Federal Reserve is going to continue to tighten monetary policy, thereby driving the value of the dollar higher. As long as that’s going to be the case, there’s no real argument for gold to take off, because it is price and those very same US dollars.
If we do break down below the $1700 level, is very likely that the market could drop a couple of hundred dollars rather quickly. With that being the case, it’s possible that we could see a lot of volatility on the way down, but at this point, I think it’s pretty clear that gold is struggling, and in order to see some type of turnaround you would have to see the Federal Reserve change its tune completely. I just don’t see that happening anytime soon, so therefore it’s likely that gold will continue to struggle going forward. Ultimately, we will have to see a complete change in the global economy to see this market take off for a bigger move.
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