Gold May Test 2013 Low on Head and Shoulders: Technical Analysis

Gold futures may test this year’s low in coming weeks as prices on charts form a head-and-shoulders pattern that signals more selling, according to Hiroyuki Kikukawa of Nihon Unicom Inc.

The most-active contract on the Comex in New York fell to $1,276.90 an ounce on Oct. 2, testing support at the August low of $1,271.80 and the upward trend that began in July, said Kikukawa, the general manager of research at the Tokyo-based brokerage. Futures traded at $1,316.60 at 8:40 a.m. in Tokyo.

“The $1,300 level will be an important point in coming days to set the market direction,” Kikukawa said. “Any move below the August level will confirm the downtrend toward this year’s low of $1,179.40 an ounce on June 28.”

Gold futures have lost 21 percent this year, heading for the first annual drop in 13 years, as some investors lost faith in the metal eroding its appeal as a store of value and as concern increased that the U.S. Federal Reserve would pare stimulus as the economy improved.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index. A head-and-shoulders pattern occurs when a price forms three consecutive peaks or valleys, the middle being the largest, and indicates a high possibility of a trend reversal.

To contact the reporter on this story: Jae Hur in Tokyo at jhur1@bloomberg.net

To contact the editor responsible for this story: Brett Miller at bmiller30@bloomberg.net

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