Gold extends slide as US dollar, equities stay aloft on US tax reform anticipation
James Chen, CMT December 5, 2017 5:28 PM
As the US dollar and equity markets on Tuesday continued to stay supported on anticipation of impending tax reform in the US, both market volatility and safe-haven demand continued to contract. This contraction could clearly be seen in the price of gold, which extended its slide of the past week as the rebounding dollar attempted to push higher.
Though tax reform is not yet a done deal, as the House of Representatives must pass its own bill and then come up with a final tax plan in conjunction with the Senate’s, the passing of the Senate bill over the weekend was a major step that has provided US markets with a significant boost of confidence. And while Monday saw a sharp fall in primarily technology stocks, a substantial rebound occurred on Tuesday as both equities and the dollar remained mostly bullish on the anticipation of corporate tax cuts.
As a dollar-denominated, safe-haven asset, gold continued to suffer on Tuesday due to the dollar’s rebound as well as low risk-aversion in the markets. Also helping to pressure the non-yielding precious metal was anticipation of a potentially impending interest rate hike from the US Federal Reserve next week. Markets are almost unanimously expecting another 25-basis-point rate increase at that time.
From a technical perspective, gold has spent the past week retreating from major resistance around the key $1300 price area. In the process, the price of gold has dropped below both its 50-day and 200-day moving averages to hit critical support lows around $1260 as of Tuesday. With any further progress on US tax reform in Congress, the dollar and US equities are likely to see an extended surge, which would weigh further on gold. In the event of a break below the noted $1260-area support, the next immediate target to the downside is around the $1250 support level. With any further breakdown below $1250, price could then begin targeting key downside support around the $1200 psychological level.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.