The gold market fluctuated during Tuesday’s trade as we continue to respect the $1750 level as support and resistance. Additionally, there is a gap directly beneath this level that could provide assistance. Whether or not we will turn around and bounce is an entirely separate question, but it appears probable. If this were the case, I would assume that we would attempt to surpass the 50-day exponential moving average.
If we break below the inverted hammer that rests atop $1728, it will unleash a fresh round of selling. This would very likely contradict a stronger dollar. In such a scenario, I believe we would continue to observe choppy price activity, followed by a test of the lows.
If we were to break below the lows, gold would likely fall another $150 before the day is done. It is not necessarily what I anticipate will occur in the future, but it is a potential that you must be aware of. Ultimately, I believe the one thing you can probably bank on is a great deal of erratic trading activity, so keep in mind that position sizing will be vital when this type of volatility is just waiting to occur. Also, keep an eye on U.S. interest rates; if they begin to decline, gold markets in general will receive a lift.
