Gold Forecast: Market Rolls Over

While the recovery was quite nice for Thursday and Friday, the reality is that yet just a blip on the radar when it comes to comparing it with the overall downturn.

• Gold markets rolled over quite significantly Monday, as it looks like the recovery is starting to take a bit of a rest.
• The $1720 level looks to offer a little bit of support, but I think that support is probably short-lived at best.
• It is only a matter of time before we break down from here, perhaps down to the lows of the $1680 level. That’s an area that is crucial in longer-term charts, so I will be paying close attention to it.

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Volatility Expected

This is a market that I think will continue to see a lot of volatility, but if we break down below the $1680 level, it’s very likely that gold will get crushed. If we break down below there, then the downside pressure will continue to increase, and that could send the market down to the $1500 level relatively quickly. The market will see that level as an area that people will be paying close attention to. Anything below there could really open up the floodgates for gold sellers.

In the other direction, if we were to break above the $1750 level, then it’s likely that we could go to the $1800 level, which is a large, round, psychologically significant figure, and a place that is rather important. The 50-day EMA sits in that same area as well, and it does make quite a bit a sense that there would be a lot of psychology and structural resistance at play there. Any signs of exhaustion in that region would more than likely attract a lot of short-sellers, especially as this market has been so negative for so long.

When you look at the Federal Reserve, it is a very hawkish central bank. That hawkish central bank will continue to drive the US dollar higher based on its attitude, and if that is in fact correct, it’s very likely that we will see gold suffer as a result. In other words, I think this is a market in which you should continue to fade rallies, especially as we have seen that action play itself out on Monday.

While the recovery was quite nice for Thursday and Friday, the reality is that yet just a blip on the radar when it comes to comparing it with the overall downturn.

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