Gold Suffers Largest Weekly Decline in Six Months

Gold markets experienced their most significant weekly downturn since May, marking a dramatic shift from recent record highs. The precious metal, which had reached a peak of $2,801.80 last week, underwent a substantial correction, with December futures falling $54.30 or 1.98%.

The downturn can be attributed to several key factors. The Federal Reserve's implementation of a 25-basis point rate cut, combined with a decisive uncontested election and remarkable dollar strength, created a perfect storm for gold's decline. The December contract shed $22.50, representing a 0.84% decrease, as the market prepares for February to become the primary trading contract later this month.

The most dramatic movement occurred on Wednesday, one day after the presidential election, when gold plummeted by $85.40. While Thursday brought a robust recovery of $46, these gains proved temporary, as Friday witnessed another double-digit decline.

Dollar strength was a major factor in this week’s price decline in gold. The dollar gained 0.64% this week taking the index to 104.833. Dollar strength has been prevalent since the week of Monday September 2024. The dollar opened at 99.883 during the last week of September, which was followed by four weekly gains over the last five weeks. 

Despite the dollar's impressive 5.47% surge over the past five weeks, gold has demonstrated remarkable resilience. When measured from Monday's open to Friday's close across these five weeks, the dollar gained 4.49%, while gold still managed a 5.65% increase, showcasing its underlying strength even in the face of significant currency headwinds.

On a weekly we can identify a common but significant pattern called a “Bearish Harami”. Although this candlestick pattern is created from only two candles, the pattern must occur after a defined and significant uptrend. Following a defined uptrend the first candle in the pattern is a large green candle (which is formed when price when the closing price is higher than the opening price of the session). 

The second candle must be a small red candle (which is formed when price when the closing price is lower than the opening price of the session) which occurs around the midpoint of the prior candle. The last requirement for this pattern is that the third candle must be a confirming candle which in the case of a Bearish Harami is a large red candle with a lower low. The lower the low on the confirming candle the higher the probability the higher the success rate. 

Given these technical indicators, gold appears poised for continued short-term weakness. However, the long-term outlook remains decidedly bullish, suggesting the current price action represents a temporary correction rather than a fundamental shift in market sentiment.