The price of gold continued to drop sharply on Thursday, extending its fall of the past two weeks, as the US dollar surged, equities rebounded from the previous day, and markets awaited President Trump’s impending announcement on who will lead the US Federal Reserve beginning in February. Helping to keep both stocks and the dollar supported on Thursday, the US House of Representatives approved a Senate budget that should open the path further to the prospect of sweeping US tax reform.
The pressure on gold since the early September, year-to-date high can largely be attributed to a recovering US dollar that has pressured dollar-denominated gold prices, a virtually relentless bullish trend for US stocks that has decreased safe-haven demand for gold, and speculation that the Federal Reserve will continue to raise interest rates both before and after a Trump-appointed Fed Chair takes office in February, when current Chair Janet Yellen’s term expires. Any such increases in interest rates will continue to diminish the appeal of non-yielding gold as an asset.
From a technical perspective, the chart of gold is showing that price turned down in mid-October from both a major psychological resistance area around $1300 as well as the 50-day moving average. This downturn has served as a potential extension of the larger bearish move from the noted year-to-date high in early September.
Currently, Thursday’s extended fall has brought the price of gold back down to its 200-day moving average, approaching the $1260-area low hit three weeks ago. This level is also around the 61.8% Fibonacci retracement of the July-September bullish run. If the US dollar remains supported on Trump’s impending Fed pick, and in the absence of any truly market-moving geopolitical event, pressure on gold towards further lows is likely to be sustained. With any further breakdown below the noted $1260 level, the next major price targets to the downside are around the key $1250 and $1200 support areas.