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Is gold hammering out a bottom?

There is no doubt that the price of gold has been pressured tremendously in the past two months, and especially since early November when Donald Trump became the new US president-elect. Although many had projected that gold could see a significant boost in the event of his victory due to the uncertainty surrounding Trump, quite the opposite has happened. Gold has fallen precipitously on rising bond yields, a strengthening US dollar, and ever-increasing expectations of rising interest rates under the Federal Reserve. In addition, surprisingly buoyant equity markets that continue to hit new all-time highs have further decreased the safe-haven appeal of both gold and the Japanese yen.

As a result of these factors (higher interest rates, stronger dollar, lack of market volatility), gold has been pushed down relentlessly from its most recent peak around $1375 in July of this year. After having dropped down to a new 9-month low around $1170 late last week, the price of gold has tentatively slowed its sharp decline. The question now is whether gold has exhausted its slide for the time being or if the precious metal has further to fall before bottoming out.

While the conditions of higher expected interest rates, a robust US dollar, and a persistent Trump Rally, continue to place further pressure on gold, much of the impact of these factors has likely already been priced-in to the plunging metal. In addition, much of the post-election market moves have arguably been overdone, rooted largely in speculation over a future Trump Administration that is based solely on Trump’s campaign promises. Whatever economic policies actually materialize after Trump takes office remains very uncertain. And with uncertainty often comes increased demand for gold.

Aside from the dynamics surrounding President-elect Trump, other upcoming market risk factors are plentiful. For one, the OPEC meetings on Wednesday pose a serious threat to market stability if there is a failure to reach a satisfactory deal agreement. Also on the immediate horizon is the Italian Referendum on constitutional reform next Sunday. The outcome of this vote could potentially cause financial havoc in Italy and the rest of Europe, which could readily send investors back towards the perceived safety of gold.

From a technical perspective, the price of gold remains below key previous support around the $1200 psychological level. Any rise back above $1200 would clearly be a bullish signal indicating a potential bottoming for the precious metal. A strong rebound above $1200 could next target major resistance around $1250. To the downside, the noted $1170 low is also at a major 61.8% Fibonacci retracement of the bullish run in the first half of the year. Therefore, that level continues to stand as an important support area for gold. Any strong breakdown below that level would be a key bearish indication that could open the way for a further drop towards $1100 support.

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