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I will be paying attention to the 10 year yield, as it has been a good indicator as to where we can go next and not only gold, but other markets as well.
- Gold markets fell almost immediately in the futures market on Monday as we continue to hear a lot of noise around the US dollar and the interest rate complex.
- Keep in mind that higher interest rates will work against the value of gold, and it should probably be noted that gold has had a nice rally for a while.
- Because of this, I think it is probably only a matter of time before we see a significant turnaround, and perhaps an attempt to clear out a lot of the “weak hands.”
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Technical Analysis
It’s worth noting that we are sitting at the 50-day EMA, which is an area that a lot of people will pay attention to from a technical analysis standpoint, but quite frankly also can be sliced through quite easily. If we were to break down below the bottom of the candle for the trading session on Monday, then it’s possible that we would drop down to the $1750 level. I think at this point we are more likely than not going to see volatility over everything else, so I do think that it makes sense that we drop a bit.
Pay attention to the US dollar, because it does have a negative correlation to the gold market, which has been relatively strong as of late. If we were to turn around and take out the $1815 level in the spot market, I think that kicks off a lot of short-term short covering and allows the market to go reaching the 200–day EMA. The 200-day EMA is currently at the $1845 level, so it makes for a quick easy $30.
On a break down below the $1750 level, it’s possible that gold goes looking to the $1720 level. The interest rates in the US continue to be a major driver of where you go, with the inverse correlation being so strong. The $1720 level is massive support, and if we were to give that up, things could get rather ugly in short order. In that scenario, we could see a massive flush lower as the US dollar would continue to punish almost everything else in the financial markets. With that in mind, I will be paying attention to the 10 year yield, as it has been a good indicator as to where we can go next and not only gold, but other markets as well.
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