Looks to Bounce From the 200-Day EMA

Gold markets have been highly volatile of late and have generally trended in a negative direction. 

• Gold markets experienced a significant drop during the trading session on Monday, before turning around as it reached the 200-Day EMA.
• The 200-Day EMA is a key indicator that many investors pay close attention to, and with its current influence on the market, it is likely that gold may experience a significant bounce from this level.
• The 200-Day EMA is not the only factor at play, as there is significant noise on the left side of the chart, indicating prior interest in this area. With a significant selloff having taken place, it is worth considering whether buyers will come back in to pick up “cheap gold”.

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One of the main factors working against gold recently has been the strength of the US dollar, and this must be considered in any analysis of the market. Additionally, it is important to keep an eye on interest rates, as they have been rising rapidly over the past couple of weeks, particularly in the 2-year market, which is something that the Federal Reserve closely monitors. As bond traders continue to anticipate inflationary concerns, gold may experience further difficulties.

In the longer term, the market must eventually stabilize, but it is worth noting that a significant clue was given near the $1900 level, as multiple inverted hammers formed in a row before eventually breaking down. This occurred after a massive two-day selloff with significant momentum. At present, gold must decide whether it can remain above $1800, as a failure to do so could indicate more trouble for the market.

Gold markets have been highly volatile of late and have generally trended in a negative direction. The next few days will be crucial in determining whether this trend continues. Because of this, I would be very cautious with my position size, but I would not hesitate to add to a position if we do in fact start to rally from here. This is because I do think that gold has a path back toward the $2000 level, but it needs some external help at this moment. Alternatively, if we do break down from here, it could be a very negative turn of events, and we could see a bit of a “trap door opening” type of effect in this market. Pay attention to the US dollar, and risk appetite in general.

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