Gold markets initially drifted toward a major support level in the form of $1620, before turning around and showing signs of strength. At this point, the market continues to see a lot of noisy behavior, and I think we’ve got a situation where we are very much in a downtrend, but that does not necessarily mean that we go straight down right away. I think that given enough time, you should get an exhaustion signal that you can take advantage of, but the Friday session was a little bit different than most.
The reason why Friday was so different is that the Bank of Japan stepped in and intervened in the Forex markets. By doing so, they ended up punishing the US dollar across the board, do to algorithmic trading. With this being the case, the US dollar losing strength of course does help gold, and algorithmic traders started buying gold at that point.
This is a market that given enough time there should be plenty of selling, especially near the $1680 level.The 50-Day EMA’s is just above there and is dropping, so I think it’s probably only the amount of time before we see signs of exhaustion.In that area, we would more likely than not see “market memory” come into the picture, right along with the 50-Day EMA that offers resistance.
I don’t think this is the beginning of something new, due to the fact that the Federal Reserve remains very tight with monetary policy, and of course the interest rates rising in the United States continue to work against gold.
The action that we’ve seen on Friday is probably short-lived at best, and I do think that by the time we get back to full liquidity, it’s probably only a matter of time before sellers reenter the market and punish gold for bouncing. If we break down below the potential double bottom, that opens up a move down to the $1600 level, and then possibly even the $1500 level after that. Ultimately, we are in a downtrend and that is exactly what you should be paying close attention to. There will be the occasional relief rally, likely solve during the day on Friday. With this, a little bit of patience probably goes a long way and I will be shorting at the first signs of a breakdown.