Ricardo Evangelista – Senior Analyst, ActivTrades
The gold price is falling by around 6% at the start of the European trading session and is testing support at $5,000. After rising by around 80% in the last 12 months, the precious metal is under pressure today.
The U.S. dollar has gained against other major currencies after it was announced that President Trump will nominate Kevin Warsh as the next chairman of the U.S. Federal Reserve, which is seen by markets as an orthodox choice. The greenback is also receiving additional impetus from reports that Democrats and Republicans have reached a compromise to avoid a shutdown of the U.S. government.
Given the inverse price correlation between the two assets, this dollar strength means headwinds for gold. Additional pressure is being exerted by the stock markets, which have recorded losses in the last 24 hours, as the profits of several leading technology companies are cause for concern. This prompted traders to close positions in assets such as gold in order to meet margin requirements elsewhere.
Against the backdrop of geopolitical and economic uncertainties, as well as medium- to long-term declining prospects for the U.S. dollar, the current decline is likely to be a correction rather than a trend reversal.
