Gold markets have struggled to kick off the trading year, losing almost $30 per ounce in what has been an absolutely vicious selloff. The market slammed into the 50 day EMA, which sits just above the $1800 level. This candlestick is very bearish, and typically these types of candlesticks do not happen in a vacuum. In other words, there will probably be people above willing to sell gold, but at this point in time we are sitting in an area that will probably attract a certain amount of support, if for no other reason than the psychology of the $1800 big figure.
The size of the candlestick itself tells you that there was a significant amount of downward pressure, and it now looks as if we are probing for some type of support based upon the last couple of weeks. Whether it holds or not is a completely different question, but at this point in time I would pay very close attention to the US dollar. Note that the US dollar did recover a bit during the day, but the reaction in the gold market was extraordinarily negative, probably much more stringent than the move in the US dollar warranted. Because of this, I think that the gold market is going to continue to struggle a bit, and as a result it would not surprise me at all to see this market looking towards the $1775 level.
A break of that level could open up a bit of a “trapdoor effect” and send this market much lower. While buying certainly seemed like the way to go on Friday, the reality is we have wiped out quite a bit of bullish pressure now that volume is picking back up.
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This article was originally posted on FX Empire
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