Markets Give Up Early Gain

We would need to recapture all of the real estate given up on Tuesday this week to show a significant change in attitude.

• Gold markets initially shot higher on Friday but gave up gains again.
• The price seems unable to hang onto positive momentum.
• At this point, the market looks as if any rally will be sold into.

But even if we do rally from here, I would anticipate that there is a lot of resistance at the $1800 level as well, which is an area that has been imported multiple times in the past, as well as an area that carries a lot of psychology attached to it.

If we were to break down below the lows of the last couple of days, then it’s possible that the market could go looking to the $1700 level underneath, which is the next major, round, psychologically significant figure. Keep in mind that the US dollar has a directly negative correlation to gold markets most of the time, and interest rates most certainly do. As interest rates continue to climb in the United States, that will have a negative effect on gold.

Bounce Expected, But Will Gold Recover?

That being said, I would anticipate some type of bounce sometime soon, as we had fallen apart so rapidly. The alternate scenario is that we simply go sideways, which is an even more bearish turn of events because it shows that nobody’s really willing to step in and pick this market up. If interest rates in America continue to climb the way they have, it’s very difficult to imagine how gold will do well. With that being the case, I like the idea of fading rallies more than anything else, but I would short the market if it broke down from here.

As far as the market changing its overall attitude, we would need to recapture all of the real estate given up on Tuesday this week to show a significant change in attitude. If and when we get that, then the market will have to deal with the 50-day EMA as well as the 200-day EMA. In other words, it’s going to take a lot of effort to recover from here. The biggest driver will be expectations coming out of the Federal Reserve, which right now looks likely to be very tight going forward, thereby putting the interest rate pressure on the gold market in general.