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.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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