The US dollar shot straight up in the air during the trading session on Thursday as retail sales came out much stronger than anticipated. This had markets diving towards the greenback rather quickly. The gold market of course is highly sensitive to the value of the greenback, as there is a strong negative correlation. With that, it is not a huge surprise to see that we did in fact fall after all of that noise in the morning.
It is worth noting that the gold market stopped at the $1750 level, which is an area that has seen quite a bit of support previously. Whether or not we breakdown through there might be a different question but I certainly think we are going to try. We slammed into it rather quickly, so it is not a huge surprise to see that we could not simply slice through it straightaway. I do suspect that the market will have multiple attempts to get below there, and quite frankly I think that the rallies that form at this point will be looked at rather suspiciously.
The size of the candlestick is very impressive, and it does suggest that we are going to continue going lower. If we were to break down below the $1750 level, then the market goes looking towards the $1680 level, an area that has been massive support multiple times, and therefore I think it will attract a lot of attention. As far as buying is concerned, it is very difficult to imagine a scenario where I would do so until we get above the $1800 level. That of course is something that is going to be very difficult to overcome, and the 200 day EMA does not help at the same time. Between here and there, I think any signs of resistance or exhaustion on short-term charts would be an invitation to start selling again, but you should keep in mind that this market does tend to be very erratic, so you have to be careful about your position size. That being said, the market is likely to be one that you need to be cautious with, but as the trade works out in your favor, then you can start to build up a larger position. I do believe that we have not seen the last of this move, but the market does not tend to go in one direction in a straight line.
