Market movements overnight were extreme; with the VIX hitting a 3 year high as the market panicked on recent data about the future prospect of rate rises in the US, and the slowdown of global growth in major economic zones such as Europe and Asia.
The volatility has been immense and the markets overnight were impressive, scary, and downright intimidating for traders. Massive moves were a result of the recent downgrade in future prospects and the USDJPY, NZDUSD and all equity indexes moved sharply as money rushed to find returns and safety globally.
Safety and something tangible is what the market seems to hunger for when stuck in an extreme situation. We’ve seen that with gold time and time again, sudden rises in the precious metal as investors rush into it. But gold got stuck as well. In fact, I was surprised how small the movement was given the panic in equity markets.
In fact gold went and hit the resistance level at 1241.00. This was a very strong resistance level in the market and it was not surprising, but past movements with gold and less volatility have seen larger movements which have smashed out resistance levels easily. So you can understand my apprehension to start longing gold in the market.
I think it’s even possible that we might see gold pull back from the resistance level in the market at present. In order for this to happen, we may need to see more bearish candles on the chart. Rushing in now would be foolish and I would look to see a solid bearish candle pushing lower and joining in via some momentum trade. Also the time window may very well be in the short term, but I feel that a movement lower, especially with some positive data, could cause a big swing lower.
Gold may well move a bit higher, but after last night’s result it was much less than anyone expected. I feel that markets may be tired of gold overall, and that there could be a swing lower if we see a solid bearish candle. Tonight will certainly give us the picture we are looking for when trading this precious metal.
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