(MENAFN - Khaleej Times) The last trading year has been quite eventful for gold, which became the battle ground of bulls and bears. The yellow metal started the first quarter of 2017 buoyed by a combination of risk aversion, dollar weakness and political uncertainty.

Buyers and sellers attacked gold relentlessly throughout Q2 and Q3, spurred on in part by dollar volatility, as well as rising stock markets, geopolitical tensions and renewed expectations of a US interest rate hike. As the final trading quarter of 2017 draws to a close, the traditional safe haven finds itself under noticeable pressure. Which leaves investors wondering, could the downside extend into 2018?

Gold's recent decline is the result of a growing sense of optimism in US President Donald Trump's ability to push through his long-awaited tax reforms. If the Republicans' tax plan does pass by the end of the year, and the dollar continues to appreciate as a result, then we may well see the yellow metal depreciate still further.

However, the tax reform faces major hurdles and it is still unclear how House and Senate bills will be reconciled. A recent letter by European finance ministers, which condemned the proposed US tax reform as contradictory to "World Trade Organisation provisions", and suggested it had the potential to "seriously hamper genuine trade and investment flows" and damage public perception (and investor confidence in) of the pending tax bill.

There is also the question of how many times Jerome Powell's Federal Reserve will be able to raise interest rates next year if the bill is passed and it does succeed in speeding up growth. The uncertainty could increase gold's popularity in 2018, and whether next year's Fed flips hawkish or dovish will undoubtedly influence gold demand.

For the moment, the Federal Reserve's latest interest rate hike is unlikely to impact gold significantly as 2017 nears its end - a hike had already been priced in.

Geopolitical flare-ups are another factor that traditionally influence the safe haven. We've seen event-driven bids in 2017, particularly at the start of the year, and more recently as uncertainty over Germany's political stability loomed. While there is an argument that conflicts, tensions and political disputes have become the new normal for Western investors in 2017, countries like India and China remain significant markets for physical gold, and any conflicts, strife or risks in these regions will likely drive physical demand.

This year's record highs in the stock markets may also work in gold's favour as institutional investors seek to hedge against a surprise risk-off event. Suggestions that the Fed has underestimated American inflation will be at the forefront of investors' minds. Indeed, inflation is likely to be a major theme of 2018. If customer price index (CPI) releases in January or February hint at an overestimation, then the demand for gold - always a popular choice for combating inflation - could receive a boost.

Taking a look at the technical picture, gold is slowly coming under noticeable selling pressure on the monthly timeframe, with $1,200 acting as an important support level. A decisive break down below $1,200 may encourage a steeper decline towards $1,148 and $1,090 respectively. Alternatively, bulls need to secure control back above $1,280 for an appreciation towards $1,323 and $1,370.

The writer is research analyst at FXTM. Views expressed are his own and do not reflect the newspaper's policy.

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