Gold Prices Drop Below $1860/oz, Seeing A Major Downtrend

On Thursday morning, the spot price of gold dropped roughly down to $1850/oz withing the scope of a strong downtrend started earlier this week, with a strong gap from the consolidation level. The key factors contributing to the price drop was the sudden strengthening of the U.S. Dollar.

Gold Price Breaks a Major Level of Support

The spot price of gold dropped down to the 8-week lows in the morning on Thursday, breaking below the threshold of 1860 dollars per ounce. A break out of the flag led to a 5,1% drop over the last 4 trading sessions, NordFX experts report.

Gold Spot Courtesy of: tradingview.com

As previously mentioned a stronger dollar turned out to be the key reason for this downtrend. This is confirmed by the USD index, which managed to reach the 92-94 consolidation range. The index has been growing for the 5th consecutive session and is now close to hitting the 2-month high at 94,44.

Gold Prices Drop Below $1860/oz, Seeing A Major Downtrend

USD Index. Courtesy of tradingview.com

Gold cannot get rid of the dollar domination, experts say. But in the meantime, the international community has been increasingly worried about the global economic recovery after the pandemic.

The strengthening of the U.S. Dollar was caused by many factors, including the mentioned concerns. In the United States, the Congress came to a dead end because of the new package of financial stimulation. None of the parties wants to compromise while the Fed warns that an immediate fiscal intervention is required. In particular, they think that without such support, the economy is risking to see a long-period of very slow recovery. So, it seems like the Fed isn't going to take immediate actions.

On the other hand, yesterday's industrial stats from the USA turned out to be not so bad, not to mention the fact that they exactly match the predictions made by respected analysts. Even though they indicate an improvement in the national economy of the United States, they cannot be seen as optimistic.

The Industrial PMI, which indicates the situation in the American industrial sector, came in at 53.5 points in September against August's 53,1 points. For those fo you who don't know, a value above 50 indicates a economic recovery in the given sector.

The Services PMI came in at 54,4 points in September against 54,6 points in August. Even though this is a slight decrease, it's still well above the mentioned 50 threshold, which is still a good sign for the sector.

Bearish Sentiment in Gold Market

The technical picture in the spot market of gold indicates the support level around the 100-day moving average, which is close to 1840 dollars per ounce. If the downtrend in the gold market persists, the price my well test it. If it's broken, the next target will be 1820 dollars per ounce.