The gold markets absolutely fell apart on Wednesday after the Federal Reserve Chairman gave little hint of further quantitative easing in testimony at Congress for the day. The market evidentially was waiting for more sugar to feed the market rallies. The economy is starting to show minor signs of recovery in the United States, and this could hint as less of a chance of inflation in the future.
The Europeans also gave little indication that another LTRO was coming, and this also removed some of the sugar for EU companies and investors. The central banks around the world have been very easy and accommodative, but both of these events during the session suggest that perhaps the markets were way ahead of reality at this point, and the central bankers might be willing to be a little more cautious about throwing money into the system than they were in recent times.
The $1,700 level gave way as the market lost almost $95 per ounce by the end of the session. This move was massive, and although it doesn't change the trend, it certainly will give pause to anyone willing to buy at this point. These types of candles normally don't operate in a vacuum. The fact that the market shed so much value truly means something.
The $1,700 level also has us concerned as it gave way much easier than expected. The market may actually be entering a longer-term consolidation range, and it could even be between the $1,600 and $1,800 levels. The range is as big as some of the ranges for entire years, so we could be entering a longer-term pattern at this point. Either way, we have to see the markets stabilize before we are willing to risk trading capital at this point.
The unstable nature of the move has us erring on the side of caution, and we suspect it might be a few days before we see a nice solid candle at one of the support levels. The market will need to either form a nice hammer, or simply show us a couple of quiet days before we look to buy again. We don't sell gold until we close on the daily chart below the $1,500 level.
Gold Forecast March 1, 2012, Technical Analysis
Gold Pivot Points (Time Frame: 1 Day)
Name S3 S2 S1 Pivot R1 R2 R3