Gold Plunges To A Fresh 5-year Low, All Eyes Turn to the Fed

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The price of gold hit a fresh five-year low on Friday after closing at $1,056 per ounce, the lowest level since February 2010.

Gold sinks to 5-year low

Gold sinks to 5-year low. Source: @StockCharts.com.

Since a peak on October 14th of $1,190 an oz, gold’s decline has been savage with down days after down days. It’s pretty clear by now that the main driver is the US dollar.

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The dollar index, which tracks the buck against a basket of international currencies, made its low on October 14th, coinciding with the dollar’s peak, and ever since, the greenback has done nothing but surge.

Gold sinks (yellow) as dollar surges (green) simultaneously

Gold sinks (yellow) as dollar surges (green) simultaneously. Source: MetalMiner analysis of @Stockcharts.com data.

Looking ahead, there really isn’t any reason to think there’s going to be a turnaround in gold or that gold has found a floor.

Interest Rates

Gold traders are looking ahead to the Federal Reserve‘s upcoming interest rate decision. Experts forecast a 78% likelihood the Fed would raise rates in December. An interest rate hike could (but not necessarily) boost the dollar even higher as it would add more market conviction that the domestic economy is doing well, or at least better than most major economies, which is good for the dollar.

Also, if the Fed raises rates, higher borrowing costs domestically would make the dollar more attractive to yield-seeking investors.

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As always, we still need to wait for how the market reacts to the announcement. But for now, things are pointing to a continuation of the dollar’s bull market and, therefore, more to come on the downside for gold.

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