The technical and fundamental reasons why gold could fall even lower

Gold slid about 2 percent Wednesday, hitting a nine-month low, as the surging U.S. dollar continues to exact a heavy toll on the yellow metal.

And at this point, technical analyst Craig Johnson of Piper Jaffray says he wouldn't be surprised to see gold prices fall all the way to $1,000 per troy ounce.

"What's happening is, we had a great relief rally that failed at $1,375," Johnson said Wednesday on CNBC's "Trading Nation."

In other words, despite the metal's substantial rise from the beginning of the year through July, the "downtrend resistance" has remained intact.

"It looks like we have further downside left to go in gold," said Johnson.

He sees the next layer of support as $1,050 to $1,000, a level that served as support in late 2015, and appeared to act as resistance in 2008 and 2009.

"We would continue to use any relief rallies to be lightening up on gold," he added.

Ironically, while gold is frequently said to serve as a hedge against inflation, it is inflation concerns that now appear to be hurting the metal.

The idea that President-elect Donald Trump's infrastructure plans will spur inflation leads to the secondary thought that the Federal Reserve will raise rates quickly so that inflation does not get out of hand.

And as rates rise, gold tends to get hit, both because rising rates make nonyielding gold look like a worse investment relative to bonds, and because rising rates tend to make the dollar more valuable, meaning that it should take few dollars to buy the same amount of gold.

Expectations that the U.S. central bank will raise rates rather quickly are moving the market, and "unless [Fed Chair] Janet Yellen tells us otherwise, we could continue to see gold fall, bonds rise and the U.S. dollar march higher," Kathy Lien of BK Asset Management said Wednesday on "Trading Nation."


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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