Is There More Downside In The Price Of Gold?

Perhaps this weekend’s New York Marathon got traders pumped up, because markets are off to a blistering start to the trading week. US equity futures are pointing to an open at all-time highs, EURUSD hit its lowest level in over two years, USDJPY is testing a 7-year high, and Gold has dropped to its lowest level in 4.5 years.

Focusing in on the yellow metal, there is no obvious single catalyst for the big drop. Of course, the persistently strong dollar has played a big role, as has last week’s solid US economic data, which decreased safe-haven demand for gold. In addition, traders pulled $1.3B from gold ETFs, showing that sentiment toward gold is also souring.

On a technical basis, prices dropped through key previous support at 1180 last week, confirming the breakdown from an 18-month descending triangle pattern. At the same time, the weekly MACD indicator is edging lower below both the signal line and the “0” level, while the RSI indicator has still not reached oversold territory, suggesting the commodity may have further to fall this week.

If the breakdown from the descending triangle pattern is indeed valid, it would point toward an eventual move down equal to the height of the triangle, or around $250-$300 dollars, over the next couple of years. More immediately though, bears will want to see whether previous support at 1180 becomes resistance this week, as well as if the metal can break below its longer-term Fibonacci retracement level at 1155. Meanwhile, a recovery back above 1180 early this week could point to a more extended bounce, though the longer-term bias would still remain to the downside.

gold_price_weekly_chart_3_november_2014

 

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