Gold reverses earlier flight to safety gains

Gold slumped once again by Monday afternoon after earlier having gapped up and rallied on this week’s open in the aftermath of the tragic events in Paris over the weekend. Spot gold reached a high around $1098 in early trading, just shy of the key $1100 resistance level, before paring its gains, filling the original gap, and reversing back down towards the $1080 support level.

The early rise in the price of gold was an initial flight-to-safety reaction after this past weekend’s attacks in Paris underscored heightened risk aversion and geo-political peril, as the precious metal often serves in the role of a “safe haven” asset during times of economic and political turmoil.

The horrifying attacks in France, however, were unable to trigger any sustained market panic, as both European and US equities rallied strongly, the traditional safe haven Japanese yen fell sharply (with the help of a weak Japanese GDP reading), and gold failed to sustain its earlier gains.

Weighing heavily on the precious metal continued to be the enduring strength of the dollar, as the greenback remained well-supported by broad expectations that the first US interest rate hike in nearly a decade could likely be initiated by the US Federal Reserve in December.

This continuing narrative should remain supportive of the dollar and induce pressure on gold at least until the actual rate decision is made by the Fed in its mid-December meeting.

Currently sitting just above major support around the noted $1080 level, the price of gold is at a critical juncture. A new five-year low at $1073 was just established on a down-spike late last week, replacing the previous five-year low of $1077 that was established in July.

With any sustained breakdown below the $1080 support area and the new five-year low, the price of gold could be sent plummeting down towards the $1050-area support target on its way potentially towards the $1000 psychological price 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.