Friday’s trading session began with a decline in gold prices, but then the market showed indications of life. At this point, it’s a straightforward reaction to the decreasing value of the US dollar, but it’s quite unlikely that this will last long. In fact, I will be keeping a close eye on the $1680 level, which has historically been significant as support. We also have the 50-day exponential moving average (EMA) hovering around the $1700 level, so I believe there are a number of factors that could cause issues for bullish traders.
As long as the Federal Reserve maintains its extremely tight monetary policy, I find it difficult to take a gold rise seriously. This does not mean we cannot rebound for a few days, but at the first hint of tiredness and, by extension, US dollar strength, I will not hesitate to short gold. If we break below the past two lows that I have noted on the chart, I believe the floodgates will open and gold will drop to $1600, or even even $1500.
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Central banks throughout the world continue to tighten monetary policy, but none of them are doing so to the extent that the Federal Reserve is, so it is difficult to conceive that the US dollar will not eventually produce problems for gold. In actuality, it is extremely difficult to conceive of a scenario in which the trend shifts rapidly. I believe individuals who are patient enough to wait for signs of weakness will find this rebound to be an excellent opportunity to sell.