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.