The gold market is moving slightly lower today as the market continues to try to find a foothold. The market currently has a number of issues working against it, including a stronger dollar index, a melt-up in stocks to fresh all-time highs and even strong corporate earnings. The yellow metal may face a steep climb until some degree of risk aversion sets into the marketplace once again.
The 200-Day Moving Average: A Key Test
The gold market has broken below previous support in the $1280-$1290 region in recent action and has continued to work lower. The next major area of potential support may now come in around the 200-day moving average, currently around $1266/oz.
The 200-day moving average is a widely used technical indicator for determining the larger-term trend in a security. As a general rule of thumb, traders and investors may look to buy above the 200-day and may look to sell below the 200-day. A significant breakdown below this level on a closing basis has the potential to draw additional selling pressure into the market while encouraging strong selling into any significant rallies.
Could $1200 Be in Store?
A breach below the 200-day moving average combined with a head-and-shoulders topping pattern could spell further downside for gold. A fresh wave of selling below the 200-day MA could trigger a barrage of shorts that could potentially take prices down to the $1200-$1220 region before finding more willing buyers. Such a move would put prices at their lowest level since late last year and could set the stage for another run at previous support around the $1180 region.
A move like that would quite possibly be met with aggressive buyers. Despite gold’s recent declines, the bigger picture for gold remains largely intact. Stocks are not likely to continue higher indefinitely, the Fed may be forced to start easing again and the dollar index rally is likely to fade.
The gold market is treading water today, not moving far from the unchanged mark in early action. Spot prices were last up $4.68/oz. at $1273.98. The market has displayed a tepid rebound to recent declines but has significant work to do in order to negate recent technical damage inflicted. Despite today’s minor rally, the 200-day MA is likely to act as a magnet for price action and the market is likely to face a significant test in the sessions ahead.