Gold Rebound Toward $1,800 Seen Before Drop: Technical Analysis

Gold probably will stay above $1,630 an ounce in the next several months and may rally to at least $1,800 before starting a decline in the second half of this year, according to technical analysis by Societe Generale SA.
The $1,630 area consists of the highs reached last summer, support levels from a declining trend channel since October and a rising support line since May, the bank said. If prices climb above the $1,703-$1,706 area, they’ll probably rally and peak between $1,800 and $1,921 in the second half, before starting a gradual decline to as low as $1,500 by next year, it predicts.
Bullion rose a 12th straight year in 2012, the best run in at least nine decades, as central banks from Europe to China pledged more stimulus to bolster economic growth. While gold failed to set a new all-time high last year for the first time since 2007, investors are holding a near-record amount in exchange-traded products. Goldman Sachs Group Inc. and Credit Suisse Group AG are among banks that say prices will probably peak this year as economies improve.
“All the technical indicators are not calling for a big correction yet,” said Stephanie Aymes, a technical analyst at Societe Generale in London. “The trend is starting to become mature. There should be a final rise, and in this final rise that will attract fresh sellers.”
Bullion for immediate delivery fell 0.8 percent to $1,661.34 an ounce in London this year, after adding 7.1 percent in 2012, the smallest gain in four years. The metal set a record $1,921.15 in September 2011 and traded as high as $1,796.05 last year. ETP holdings at 2,610 metric tons are about 0.8 percent below the Dec. 20 all-time high, data compiled by Bloomberg show.

Bearish Channel

The $1,703-$1,706 area consists of the top of the bearish channel since October, Aymes said. Prices peaked near $1,800 in November 2011 and in February and October last year. Since the end of 2011, the metal traded in a $273 range, with the mid- point being about $1,659.
“We’ve been in a range for more than a year and now we’re in the middle of that range,” Aymes said. Prices above $1,800 means there is a “significant risk of a plummet,” she said.
In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index. Common indicators analyzed range from moving averages to Fibonacci levels to Ichimoku charts, as well as previous highs and lows and trend channels.
Gold generally only earns returns for investors through price gains. The Bank of Japan (8301) said Jan. 22 it will buy about 13 trillion yen ($143 billion) in assets per month from January 2014. Federal Reserve minutes released Jan. 3 showed some policy makers favored ending $85 billion in monthly bond purchases this year. The U.S. economy will accelerate from the second quarter through the start of 2014, economists’ forecasts compiled by Bloomberg show.

Goldman Outlook

Goldman said Jan. 18 that it expects gold to climb to $1,825 in the next three months, while restating a forecast for prices to peak this year and be weaker in the second half. Credit Suisse expects the metal will average a record $1,740 this year, before declining in 2014.
The drop of as much as 9.5 percent in the three months through Jan. 4 pushed gold below its 200-day moving average last month for the first time since August. Prices slid about 10 percent in seven weeks after falling below the measure in March. They swung above and below the average since December, and are now about $2 below it.
“Moving averages help investors profit during trending markets because they have a trend to follow,” said Jim Stellakis, founder of research company Technical Alpha Inc. in Greenwich, Connecticut and a chartered market technician. “In sideways markets they are useless. In just the past month, gold has round-tripped the widely-followed moving average four times.”

Moving Average

The metal closed below the 200-day moving average on Jan. 25. That scenario would increase the likelihood of further declines toward the 2012-13 support line at about $1,632 and the January low of about $1,626, Commerzbank AG analysts wrote in a Jan. 23 report. Staying above that area would be “key” for the medium-term trend, and a drop lower means prices could slide below $1,600, it said.
A gain above the downtrend channel resistance level of about $1,703 means prices could reach the mid-December high of about $1,723 and then $1,731, Commerzbank said. That’s the 61.8 percent retracement of the October-to-January decline, a level singled out in so-called Fibonacci analysis.
Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low.