Gold May Drop as Trend Shifts, Rudolph Says: Technical Analysis

Gold, which climbed to a record last month on concern that the global economic recovery may be faltering, may slide to the lowest price since May, according to a technical analysis from Commerzbank AG.

The metal, trading today at $1,213.65 an ounce, may slip to $1,172.10 after closing below its 55-day moving average, Axel Rudolph, a technical analyst at the bank, wrote in a report, citing trading patterns. That dip “makes us question our previously bullish forecast,” Rudolph wrote in the July 2 note.

In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index. Gold has advanced 11 percent this year as investors seek to preserve their wealth from weaker currencies and the possibility the global economic recovery may falter.

Gold ended at $1,198.95 an ounce on July 1, less than the 55-day moving average of $1,207.12, Rudolph wrote. The move, coupled with “the strong divergence seen between the latest price highs and the daily relative strength index, point towards the possibility of a trend reversal taking place,” Rudolph said.

Gold’s 14-day relative strength index, a measure of whether an asset may have risen or fallen excessively, weakened to 40.7 on July 1, the lowest level in more than three months. The index was at 46.08 at 11:14 a.m. today.

The metal last traded at less than $1,172.10 an ounce on May 21, when it fell as low as $1,166.30, according to Bloomberg data. Gold touched a record $1,265.30 an ounce on June 21.

Commerzbank remains bullish on gold in the medium term as long as the 2008-2010 channel support line at $1,158.28 is not breached, Rudolph said, referring to a line connecting the lows over this period. Medium term was not defined in the note.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE