The price of gold has remained in a relatively tight trading range for the past two weeks after a rapid selling frenzy caused a dramatic plunge below $1100 to hit a new five-year low. Prior to that drop, gold had already broken down below its previous support level around the 1142 price region, which had served as key support in November of last year and March of this year. That breakdown confirmed a continuation of the longstanding downtrend in gold that has essentially been in place since late 2011. After that plunge, the precious metal regained some measure of stability, but briefly spiked down to touch a new low around $1077 before bouncing. Currently in a continued consolidation above that low and just below $1100, gold’s short-term direction should be significantly influenced by the timing and magnitude of future Fed rate hikes, and the resulting fluctuations of the US dollar.
While the price of gold is significantly oversold from a technical perspective, and a rebound to correct the recent over-extension to the downside should be due, the possibility of a relief rally will be largely dependent upon shifting speculation with regard to upcoming Fed statements and decisions.
Despite the new five-year intraday low being around the noted $1077 level, key support actually resides around $1085, which served as support back in 2010. This level also stands as the 161.8% Fibonacci extension of gold’s latest rebound from this past March to May. If this key support is unable to hold, a sustained breakdown could send the price of gold tumbling down to the next major support levels at 1045 and then 1000, which is both an important psychological level as well as the 261.8% Fibonacci extension of the noted rebound earlier this year. Any significant rebound from current support should be limited to the upside by the noted 1142 prior support level, which may now be considered a major resistance level.