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Gold Seen Plunging to $1,300 on Bear Flag: Technical Analysis

Gold will probably extend its 14 percent slump this year to the cheapest level since 2010, according to technical analysis by Barclays Plc.

After dropping to a 25-month low of $1,321.95 an ounce on April 16, prices have rebounded to $1,448.28, creating a so-called bear flag that signals a drop to $1,300, the lowest since September 2010, said Dhiren Sarin, chief technical strategist for Asia Pacific. A bear flag, named for its resemblance to an inverted flag on a pole, occurs when a security is falling, pauses and consolidates, and continues its drop.

“If it breaks down below $1,390, then we can see further downside to $1,300,” Sarin said. He cited similar patterns in January and February when prices climbed from lows to form a bear flag, only to resume their slide days later.

Gold tumbled into a bear market on April 12 and by the end of the next trading day prices had slumped 14 percent, the biggest two-day rout in three decades. Should the metal fail to rally by the end of the year, it would mark the first annual decline since 2000. Goldman Sachs Group Inc. is forecasting $1,390 in 12 months.

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

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