Gold Double Bottom Signals Rally to $1,425: Technical Analysis

Photographer: Haruyoshi Yamaguchi/Bloomberg

Price of gold has dropped 21 percent this year, tumbling into a bear market in April, as U.S. equities rose to a record and inflation remained moderate, eroding the appeal of the metal as a store of value. Close

Price of gold has dropped 21 percent this year, tumbling into a bear market in April,... Read More

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Photographer: Haruyoshi Yamaguchi/Bloomberg

Price of gold has dropped 21 percent this year, tumbling into a bear market in April, as U.S. equities rose to a record and inflation remained moderate, eroding the appeal of the metal as a store of value.

Gold futures may rebound to $1,425 an ounce in the fourth quarter after forming a “double bottom,” according to technical analysis by Logic Advisors.

The price may climb 7.9 percent from the latest settlement, said Bill O’Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey. Yesterday, the price touched $1,276.90, the cheapest in eight weeks, following the first trough of $1,271.80 on Aug. 7. A double bottom is a chart pattern showing a drop, a rebound and then another decline approaching the previous low, usually indicating price support.

Yesterday, gold had the biggest gain in almost two weeks on speculation that the Federal Reserve will delay reducing monetary stimulus amid the first U.S. government shutdown in 17 years. The price has dropped 21 percent this year, tumbling into a bear market in April, as U.S. equities rose to a record and inflation remained moderate, eroding the appeal of the metal as a store of value.

“We have seen prices bounce back from the $1,270 level, and it seems like we have found a bottom,” O’Neill said in a telephone interview. “The political uncertainty and physical demand should also provide support here.”

Holdings in exchange-traded products backed by gold dropped to 1,929.26 metric tons, the lowest since May 2010, cutting $60.1 billion from the value of the funds this year.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

To contact the reporter on this story: Debarati Roy in New York at droy5@bloomberg.net

To contact the editor responsible for this story: Patrick McKiernan at pmckiernan@bloomberg.net

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