No support for gold price as decline extends to $42 in worst fall of 2016

San Francisco (Oct 4)  Gold falls most in more than a year. The gold trade today is a pretty good reminder that you always have to keep one eye on the chart.

There were three layers of support that gave way and that's what led to the bloodbath. First was the uptrend since December, which broke yesterday.

Today it was the August low near $1300 and the 100-day moving average at $1310. The breaks led to cascading stops and the lack of technical support below has allowed the drop to continue.

This is the sixth consecutive day of declines and given that the one-day drop is the largest in at least a year, then it's not a good time to be selling.

I look to the 200-day moving average at $1257 as support along with the June low of $1250. There's a scope for a rebound there but with news today that the ECB is thinking about tapering, the path may still be lower.

"The picture is darkening," I wrote earlier today after the initial break of $1300. "Technically, I don't see much in terms of support until the 200-dma at $1257."

Fundamentally, there's talk about hawkish comments from the Fed's Mester and Lacker but those are hardly a reason to sell gold. Those two have been relentlessly hawkish so there is nothing new.

The Fed funds futures market is pricing in a 21% chance of a hike in November and a 61% probability of a move in December. In terms of the election, it's tough to handicap how gold may react. A Clinton win would largely be the status quo while Trump would create uncertainty and risk aversion. But that may not translate into gold gains, especially if the follows through with tough talk and replaces Yellen with someone more hawkish.

Both of them are more likely to ramp up government spending and that's more likely to be gold positive. The flipside, however, is that it will push up Treasury yields, which are competing for 'safe' dollars with gold.

Source: FOREX-live