By FXEmpire.com

The gold markets fell on Tuesday, triggering a sell position at the bottom of the previous day’s small shooting star. While we didn’t take the trade, there is a case to be made for it. We are waiting until the $1,500 level gives way to become aggressively short of the gold markets. However, shorter time frame traders certainly saw an opportunity in this set up and took it.

If you are one of these traders, you must be aware of the $1,540 to $1,550 level. The area looks as if it could be supportive, but for the short term trader, a move of roughly $25 is enough to make them very happy. With the volatility of the gold markets, we prefer to take trades based upon the larger picture most of the time, and we see that $1,500 level as a major sign of capitulation by the bulls in this market.

By far the best performing asset at the moment is the US dollar. As long as this is the case, gold (and silver) markets will struggle as risk is sold off in uncertain times. The European issues are far from being resolved, and as long as that is the case – the Dollar is king. When the Dollar rises the commodities will often fall. This is basic math as it takes less Dollar s to buy those commodities. However, this isn’t always the case, as both can rise at times. It essentially comes down to WHY the Dollar is rising. When it is fear, commodities suffer. When it is US strength like it was in the 90s, commodities rise because demand out of the US is strong.

Looking at the longer term charts, this market is still technically in an uptrend, but the resilience of gold is being seriously tested at this point in time. It is going to take some kind of new quantitative easing out of the Fed in order for gold to take back off like it has over the last few years. The other possibility is that Europe finally gets everything together, which is unlikely. At this point in time, we are aggressively selling gold if it closes below the $1,500 level. As for buying, we need supportive candles again to do that.

Click here to read Gold Technical Analysis.

Originally posted here