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Will gold continue on a downward trend?

Last week, gold prices fell to a very significant and also psychologically important mark of USD 1,200.00 per troy ounce.

Gold

But does this mark the beginning of a sustained downward trend? I do not believe that it does — as long as we don’t fall below USD 1,170.00. Instead of referring to a support level of 1,200.00, I would suggest a support zone within a trading range of USD 1,170.00–1,200.00. In the past, we have already seen striking highs and lows within this range, and the effects of these are now beginning to have an effect. Additionally, the 61.8% Fibonacci Retracement Level seen during the upward trend of December 2015–July 2016 is pretty close to USD 1,170.00.

The Trump vote puts pressure on the price of gold

After Donald Trump’s election win, gold prices dropped well over USD 100.00 because of two factors: Firstly, the US dollar initially showed a strong rise, causing the US Dollar Index to rise from 98 to just below 102 points. Precious metals are traded in USD, so this makes investing in them more expensive for investors who do not use the USD as their main currency. Secondly, Trump stoked up fantasies about growth in the US economy, which has led to a risk-on attitude. Money was consequently withdrawn from relatively safe havens such as gold and equity investments.

Recounts could contribute to insecurity

Gold investors may now benefit the Green Party politician, Jill Stein. After initial suspicions about irregularities in the vote count in the states of Wisconsin, Pennsylvania and Michigan (all of these states were narrowly won by Trump), she now has the necessary resources to file for a recount in all three states. She filed for a recount in Wisconsin last Friday, while the deadline to file a recount in Pennsylvania is on 28 November, and for Michigan on 30 November. These new uncertainties may help to stabilise the price of gold.

In my opinion, there are two possible scenarios: If the insecurities in the market increase, this will stabilise the price of gold. However, if the benchmark of USD 1,170.00 per troy ounce is marked down over a sustained period, then this may mark a return to the lows seen in December 2015.

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