Gold markets rallied initially on Wednesday but gave back the gains at the previous uptrend line. This suggests that there is simply not enough in the way of momentum to break out and it would not be a huge surprise at all to see this market continue to flounder just below the $1800 level every time it gets there. In fact, the $1800 level is not only a large, round, psychologically significant figure, but it is also an area where I think a lot of traders will be looking to short this market. After all, the inflation story is starting to dissipate a bit, so that does have a certain amount of an effect on what happens with gold. I think given enough time this is a market that will try to figure out where it wants to go next, but I think in the short term it looks like it is going to be very noisy.
Keep in mind that the US dollar has a negative correlation to gold, although both can go in the same direction for long periods of time. After all, in the 1980s both were relatively strong and that is something that you should continue to keep in the back of your mind if you are trading this market. That being said, it does not look likely that that will be the case this time around, and a breakdown below the bottom of the candlestick for the trading session on Wednesday could open up fresh selling towards the $1760 level. I think given enough time, we will probably continue to see the market as one that is a “fade on the rallies” type of situation, as soon as there is the smallest sign of exhaustion.
If we did break above the $1820 level, that would change the entire narrative, breaking through a significant amount of resistance. At that juncture, I would be a buyer and aiming for the $1870 level above. That does not seem to be very likely, but if we were to get a big move, that is exactly how I would be playing this. To the downside, it is very likely that if we break down below the $1750 level, the bottom falls out and then we go racing towards $1725, followed by $1680 which would have to hold in order to keep any hopes of gold rallying alive.
