Gold plunges as dollar rises, equities reverse gains
James Chen September 10, 2015 12:23 AM
<p>Gold plunged almost 2% to a four-week low by Wednesday afternoon as the US dollar gained traction, especially against the Japanese yen, and equities markets […]</p>
Gold plunged almost 2% to a four-week low by Wednesday afternoon as the US dollar gained traction, especially against the Japanese yen, and equities markets reversed the substantial gains made earlier in the day.
The sharp decline on Wednesday pressured the precious metal below key support around the 1110 level to hit a low just slightly above 1101. In the process, the price of gold dropped sharply below its key 50-day moving average, above which it had been in a tight trading range since the beginning of the week.
Wednesday’s plummet constitutes the largest daily drop in two weeks, and shows the demand for gold in a weak state, especially in light of a strong dollar and ahead of next week’s pivotal Fed statement and decision with regard to a potential rate hike.
As the price of dollar-denominated gold is highly correlated with the US dollar, expectations of a rate hike either in September or December of this year have recently propelled the dollar while placing tremendous pressure on the price of gold.
The past two weeks of losses for gold constitute a retreat from a rebound high around the 1170 resistance level starting in late August. That high was the culmination of a two-week surge in mid-August that lifted the precious metal far above its July five-year low of 1077. The sharp surge was due to a combination of equity market volatility, a pullback in the dollar, and short-covering after the price of gold stagnated in a prolonged consolidation near its lows from late July to early August.
With market expectations of a Fed rate hike occurring either by the end of this year or at least shortly thereafter, the price of gold could very well have significantly further to fall as the dollar continues to be supported.
Further near-term losses could push the precious metal down towards major support around the 1080 level, where price found strong support and a tentative bottom in late July and early August. On a longer-term basis, the primary downside objective is at the 1000 psychological level. Upside resistance currently continues to reside around the key 1142 support/resistance 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.