Gold plunge pauses but downside risk remains

After nearly a week of sharp declines in the aftermath of last week’s US presidential election, the price of gold paused for a breather on Tuesday. Fundamental pressures remain, however, in a market environment currently dominated by low market volatility and higher interest rate expectations. These prevailing conditions have been the primary forces driving gold prices lower, and are likely to continue impacting the precious metal at least on the immediate horizon.

From a technical perspective, the past week has seen the price of gold break down below major support at $1250 after a short-lived, risk-driven spike to the upside during the night of the US presidential election a week ago. The post-election plunge followed through on that breakdown, landing most recently on Monday at the 50% Fibonacci retracement of the uptrend from the December 2015 $1050-area lows up to the July $1375 high. During the process of this recent plunge, gold’s 50-day moving average crossed below its 200-day moving average, forming a relatively rare and highly significant bearish indication known as a “death cross” pattern.

In the likely event of a continuation of gold’s decline in the run-up to the Federal Reserve’s December meeting, a breakdown below current support should meet further support immediately to the downside around the psychologically significant $1200 price level. Any further move below $1200 would constitute a major bearish breach, potentially opening the way for a significantly deeper fall towards the $1150 support area.