The gold markets initially tried to rally during the trading session on Friday but gave back the gains rather quickly. Because of this, we ended up forming a bit of an inverted hammer, which could lead to continuation to the downside. By breaking down below both the Thursday and Friday lows, we could very well see this market drop to the $1750 level, followed by the $1725 level. It should be noted that this is the most likely of paths based upon the way of the chart presents itself right now.
When you look at the upside, we would need to clear the top of the inverted hammer at the very least to start thinking about going long, but more likely it would make sense to wait until we get above the 200-day EMA, which is presently sitting at the $1811 level. If that happens, then it is likely that we will go ahead and fill the gap above which could open up the possibility of a move to $1855 before it is all said and done.
I think one thing that we are going to continue to see is a lot of noisy trading more than anything else, and it almost certainly will be a reflection of what is going on in the US dollar, as that has been the big driver of this market lower. After all, the Federal Reserve suggesting that they may have to tighten sooner than people thought has put a bit of a charge into the greenback, but there is a long way to go before they actually do anything, and Jerome Powell himself said that not too much should be read into it. Nonetheless, the market has obviously decided to take off in that direction.
If we continue to see the US dollar pick up, that is going to be a major problem for the gold market, as the cost of holding gold becomes an issue. Furthermore, it will take less of those greenbacks to buy a bar of gold, so it all ties together quite nicely. Pay attention to the US Dollar Index, and trade the gold market in the opposite direction, as it is typically negatively correlated. Ultimately, this is a market that I think is sitting on the precipice of a rather large move, which I must admit looks more negative than anything else.
