Even if we were to rally above the $1680 level, I think there is a significant amount of resistance all the way to the $1725 level.

• Gold markets have tried to rally during the trading session on Wednesday but continue to see a lot of trouble near the $1680 level.
• This is an area that previously has been important as a support level, and now it should offer a bit of resistance as we approach it yet again.
• The 50-Day EMA sits just above there and could cause a little bit of resistance as well.

Keep in mind that gold is a market that is very sensitive to interest rates in the United States and of course the US dollar. The US dollar has gotten a little bit of a beating during the day on Wednesday, and therefore it does make a certain amount of sense that gold would rally. However, the market is more likely than not going to continue to look at this through the prism of risk appetite, and I do think that it’s only a matter of time before interest rates spike again. One of the big reasons that we have seen interest rates fall the way they have, the Bank of Canada raised interest rates by only 50 basis points instead of 75. It’s likely that a lot of traders are starting to think that perhaps the Federal Reserve will do the same.

That’s a very dangerous dream to have because quite frankly the Federal Reserve has made it abundantly clear that they are going to fight inflation with everything they can. In the last couple of days, I have heard stories about the fact that the Fed may only raise 50 basis points, and of course thoughts about the possibility of “Operation Twist” coming back into play, which is essentially the way that the Treasury Department manipulates the bond market. At this point, Wall Street is grasping at any straw I can, as they believe that the Federal Reserve is going to come and save them again. Unfortunately, this is what the Federal Reserve has caught Wall Street over the last 15 years, no matter what - the stock market has to be saved. Even if we were to rally above the $1680 level, I think there is a significant amount of resistance all the way to the $1725 level. With that in mind, be very cautious but recognize that we are still very much in a downtrend.

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