XAU/USD had a rough session on Wednesday as we are now below the $1700 level. Quite frankly, this is a very bad look for the market, but there is a significant amount of noise all the way down to the $1680 level. If we were to break down through that area, it’s likely that we will see a lot of selling pressure, perhaps opening up the “trapdoor” for this market.
The market breaking down from here will possibly have something to do with the US dollar, or perhaps even higher interest rates. Both of those will continue to work against the value of gold, so you need to be cautious about how you play the market. Pay close attention to the 10 year yield, as it has a negative correlation to gold. Ultimately, this is a market that’s been in a nasty downturn for a while, but now we are testing an area that is supported going back multiple years. In other words, if gold is going to turn around, it needs to do it right now.
If we do break down below the $1680 level, then it would not surprise me at all to see gold drop down to the $1500 level. The $1500 level is a large, round, psychologically significant figure that has attracted buying pressure in the past. Furthermore, I do believe that a lot of momentum could jump into the market on a breakdown.
Alternatively, we could turn around and recapture the $1720 level. If we do that, then we will more likely than not challenge the $1750 level, an area that has been resistant and noisy over the last several days. If we were to break above there, then you have to start looking at the $1800 lower, and the $1800 level also features the 50-Day EMA that is breaking down to that level. The 50 Day EMA is an area that a lot of people pay close attention to, so it’s an obvious magnet for price. Regardless, this is a market that looks as if it favors the downside, especially after the movement on Wednesday. Ultimately, this is a market is going to continue to be very choppy, so please keep your position size reasonable as this could cause a lot of damage to your account.
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