December gold is now hovering around 1200, and with the most recent lows being well below 1200, I believe a sell-off down to 1125 is entirely possible given the circumstances. Let’s look at the first reason why we’ve seen such a sell-off in precious metals in general. A very nasty trade war with China, plain and simple. The global trade war with China is likely to get much worse before it gets better, and its ripple effects across markets such as gold where it trades against the US dollar is likely to continue to slide. An additional wave of 200B in tariffs could in fact slow the global economy down, but the economic data we have seen so far has not shown any meaningful impact on the overall US economy. Another catalyst pushing gold futures lower has been the expectations that two additional rate hikes in 2018 will push the US dollar index to new highs once more, thus reducing investor return for non-interest-bearing assets such as gold.
I believe that the only reason that you are seeing any kind of buying interest in December gold is the emerging market currency crisis in countries such as Argentina, Venezuela, and Turkey. All three countries have seen double digit slides in their currencies and it’s likely to continue. Many in those countries are buying safe haven assets such as physical gold and keeping that market afloat. One thing that could turn the gold market around at least in the interim a break in the NAFTA trade talks, which could take the pressure off gold at least in the interim. Most investors are nervous with stocks at record high levels and could diversify their assets by positioning in gold and other precious metals in case of a broader market correction.
Gold Dec ’18 Daily Chart