Gold markets run into major resistance

During the early trading on Thursday, we have seen Gold markets rally rather significantly, but by the time the Americans came on board we had given back a huge portion of the day, and even started to turn negative. This is a very ominous sign, as we are approaching significant areas.

Previous trend line

We have recently seen a significant trend line lift Gold markets higher, but as we approached that general vicinity, somewhere near the $1322 level, on Thursday sellers stepped back into the market to push things back down. With that being the case, it looks as if the market may go looking towards the $1300 level which of course was psychologically important. Below that, there is significant support at the $1280 level, but with it being towards the end of the week, this could simply be profit taking.

The US dollar

Remember that the US dollar of course has an influence on this market, and we have seen the EUR/USD pair fall rather significantly during Thursday trading. This naturally leads the US dollar higher against most other currencies, which naturally will put bearish pressure on gold as it is priced in those very same US dollars. This is not to say that we can’t see both the dollar and gold rally at the same time, most certainly they did throughout the 1980s, but all things being equal that’s typically the relation that we see.

The Federal Reserve

Now that the markets have gotten the dovish tone out of the Federal Reserve that they so desperately wanted, it appears that we are starting to focus on the US/China trade relations again. After Jerome Powell suggested that there was zero chance of an interest rate hike in 2019, we initially saw a lot of US dollar selling, which was part of the rally that happened in Wednesday when it came to the precious metals markets. However, it’s very possible that traders are starting to read into the suddenly dovish Federal Reserve as a sign of economic headwinds, and that typically will certainly send money into the US bond markets, which by their very nature demand US dollars. As that goes, so goes the value of the currency.

The question is what does the Federal Reserve know that we don’t? Recently, Jerome Powell was on 60 Minutes in the United States, a popular news program, with Janet Yellen and Ben Bernanke. That’s not a good look if you think about it, and people are starting to question whether all three Federal Reserve Chairs being on the news at the same time is it a sign of a deeper concern. Remember, the Federal Reserve told us that the “subprime housing concerns are contained”, just before one of the largest collapses that we’ve ever seen in financial markets.

Ultimately, there is a bid for Gold

In general, there is a bid for Gold markets, and we may just simply need to pullback in order to find a bit more in the way of bullish pressure. If we can break above the top of the candle stick for the Thursday session, that’s obviously a very bullish sign. However, if we break down below the $1280 level, then we could drop down to the $1250 level with a little bit more bearish pressure. Longer-term, with central banks around the world devaluing their own currencies, one would think that gold should eventually get a nice bid.