The gold market has gone back and forth during the trading session on Wednesday, as we continue to see the US dollar work against the value of certain commodities, with gold being especially sensitive to the US Dollar Index. It is worth noting that we rallied towards the 50 day EMA during the previous session on Tuesday, and then formed a bit of a shooting star. The Wednesday session look very much the same, and as such you can look at it as a bit of a “micro double top.”
Breaking down below the bottom of the candle stick for the trading session on Wednesday could open up a move down to the $1750 level, an area that has been supported in the past. The fact that we are pulling back from the 50 day EMA and the 200 day EMA. In fact, we recently formed a bit of a “death cross”, so that is a longer-term bearish signal as well. The bond markets of course are showing quite a bit of strength, and as a result it makes quite a bit of sense that gold would suffer at the hands of it.
A lot of this comes down to the idea of whether or not it is easier to hold a piece of paper and collect yield, or do you need to go out and pay storage fees for large bars of gold? This is a question that a lot of people in the hedge fund community will be paying close attention to. For what it is worth, there are a lot of questions about inflation, but we also have to worry about risk appetite. After all, although gold is sometimes thought of as a “safety asset”, the reality is that most people go into bonds more than anything else.
If we were to break down below the $1750 level, it opens up a move down to the $1680 level, where we had formed a significant amount of support at least three times recently. On the other, if we turn around a break above the 200 day EMA then we could go looking towards the $1830 level. Breaking above that level then allows the market to go looking towards the $1930 level, and possibly even beyond. That could be a major trend change just waiting to happen, but it seems to be very unlikely.
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