Gold Markets Break Down Rather Significantly

Pay close attention to your position size, these types of markets get very dangerous.

Gold markets have broken down significantly during the trading session on Thursday, as the 200 Day EMA continues to offer a significant amount of resistance. By doing so, the market looks as if it is ready to fall somewhat hard, and now that gold is more likely than not to continue selling off, perhaps reaching down to the $1800 level. That is an area where I would anticipate seeing a lot of noise. It is a prominent, round, psychologically significant figure and where we have previously seen buyers.

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For most markets, the US dollar has been like a wrecking ball, and gold has been no different. Ultimately, this market has broken significantly through the 200-Day EMA, which is a very negative sign for most technical traders. Given enough time, rallies will continue to attract sellers, and it looks as if the “fear trade” has gripped the markets entirely. The size of the candlestick is worth noting, it is longer than a previous couple of candlesticks, and therefore a lot of people will be paying attention to it. Rallies will probably see the 200-Day EMA as a barrier.

If we were to break above the 200 Day EMA, then it is likely that we could go higher, perhaps reaching the $1880 level. That is an area where we had seen a lot of selling previously, and therefore I think it makes quite a bit of sense that we would see short sellers coming back into the market. I am not interested in buying this market because, quite frankly, the US dollar looks like it is nowhere near selling off anytime soon. Because of this, the market will more likely than not continue to be a “fade the rally” situation.

If we were to break down below the $1800 level, it would be extraordinarily bearish and could have the “floor of the market” coming undone. At that point, we would probably have an intense move. If we did turn around a break above the $1900 level, then you can make an argument for a recovery. Until then, I would not look to the upside. The Thursday candlestick confirmed just how bearish this market is going to be. Ultimately, it seems as if we go much lower. Pay close attention to your position size, these types of markets get very dangerous.