Gold plunge approaching support

Gold extended its recent plunge on Monday by dropping for the fourth consecutive trading day to hit a new four-week low. In the process of this slide since last week, the price of gold has also dropped below both its 200-day and 50-day moving averages.

Helping to prompt this drop was the Fed’s statement last week that led many to speculate on a sooner US rate hike, perhaps by the end of this year. That moderately hawkish-leaning statement led to an initial surge for the US dollar and a substantial corresponding drop for gold. While the dollar quickly stabilized and gave back some of its gains, however, gold continued to fall rather precipitously.

There are technical signs that the current slide could either be waning or seeking a near-term bottom, as gold is approaching the lower support border of a clearly-defined rising trend channel extending back to July’s multi-year low of $1077. Slightly more than two weeks ago, in mid-October, price action turned down from an intermediate high of $1191, which was at the upper resistance border of this same parallel trend channel. Since that high, the price of gold has plunged sharply for much of the past two weeks.

During the current trading week, perhaps the most important fundamental event that could either reinforce or reverse the bearish momentum in gold is Friday’s Non-Farm Payrolls report for October coming out of the U.S. The last four monthly employment reports fell significantly below prior expectations. If it does so again on Friday, which could affect the Fed’s decision on rate hike timing, we may expect to see a significant bounce for gold. A higher-than-expected number, in contrast, should extend the precious metal’s recent fall.

In the event of a bounce for gold, key support directly below resides around the noted bottom border of the rising trend channel. Currently, that level is roughly around the $1125 area. If there is a breakdown below that support, however, further support immediately to the downside can be found at the key $1100 level.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website 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.