Gold Forecast: Looking at Noisy Behavior

  • Spot gold markets have fallen roughly ½% for the trading session on Friday, as we are threatening the $1750 level.
  • The market is likely to continue to see a lot of noisy behavior.
  • Need to be paying close attention to the bond yields in America and other major economies as gold is highly sensitive.

Furthermore, it’ll be interesting to see how next week plays out due to the fact that the central bankers are all meeting at the Jackson Hole Symposium. There will be a lot of talk about fighting inflation, which should continue to put pressure on the upside on bond yields. It’s much easier to own bonds and earns a yield than it is to hold gold and store it which of course has costs involved. In other words, this is a market that has a lot to look at next week.

If we do break down below the $1750 level, it’s likely that the market will go to the downside and look toward the lows at the $1680 level. The $1680 level underneath should be supported, as we have bounced so hard from there. If we were to break down below there, then the market is likely to go down to the $1600 level. This would almost certainly accompany a strengthening US dollar, so pay close attention to the US Dollar Index. Higher interest rates will cause a chain reaction in this market.

If the market were to turn around and rally from here, I think there is a significant amount of resistance above, especially near the $1800 level. That’s an area that has a lot of market memory built into it, as it had been massive support previously. I think that this is going to be a “pay the rally” type of situation, at least until we can break above the 200-Day EMA. We have a long way to go before we go there, and therefore it’s likely that you would see more of a “fade the rally” type of attitude going forward. Remember that the US dollar is like a wrecking ball against most assets, and of course, gold won’t be any different. Expect volatility, and keep your position size reasonable, as the noise in this market can be very challenging to say the least.

Steve Walker

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