Gold dips to new five year low on Fed anticipation

Gold dropped to a new five-year low below $1080 support on Thursday morning, dipping under July’s $1077 low, as the US dollar initially remained strong and pressure on gold continued to mount over anticipation of a December interest rate hike by the US Federal Reserve.

This building anticipation of a Fed rate hike, which is generally considered by the financial markets to be bullish for the dollar and bearish for gold, has led to the nearly vertical plummet for the precious metal over the course of the past two to three weeks.

Although it would seem logical that most of this Fed-anticipation should have already been priced into the markets by now, gold continues to fall precipitously on any hint or indication that a December rate hike may increasingly be likely.

A case in point is last week’s surprisingly strong US non-farm payrolls report for October, which further supported a potential rate hike next month. Today’s weekly US jobless claims report showed that unemployment claims last week were unchanged at 276,000. Although this reading was higher (and therefore worse) than the consensus expectation of 270,000, it is still considered low enough to reflect a strong labor market and support a Fed decision to raise rates.

After dipping below July’s noted $1077 low on Thursday morning, the price of gold rebounded back above the $1080 support/resistance level, but still remained pressured. Having retested $1080 support, the precious metal is at a critical technical juncture. If the $1080 support area ultimately holds, gold could see a relief rally back up towards the $1100 resistance area and possibly above.

With continued speculation over a December rate hike, however, the outlook remains rather bleak for gold, at least until the actual Fed meeting occurs in mid-December. Any sustained breakdown below the $1080 support area and the new five-year low could send price plummeting down towards the $1050-area support target on its way potentially towards the $1000 psychological price level.