Gold Moving Average Signals Drop to $1,300: Technical Analysis

Gold futures, which fell into a bear market this month, are poised for more declines and may plunge to the lowest since September 2010, according to technical analysis by Fain Shaffer of Infinity Trading.

Prices may drop 11 percent to $1,300 an ounce after the metal has been unable to close above its 20-day moving average, said Shaffer, the president at Infinity Trading. Gold futures for June delivery slid 0.6 percent to settle at $1,453.60 on April 26. The 20-day moving average is about $1,480.

Bullion has slumped 13 percent this year, including a two-day, 13 percent plunge through April 15 that was the biggest in 33 years. Holdings of global exchange-traded products backed by the metal have slumped 13 percent to the lowest since 2011, signaling some investors have lost faith in the metal as a store of value. Prices climbed 4.2 percent last week, the most in 15 months, as lower costs boosted demand from jewelry and coin buyers.

“The technical indicators show the market is still weak,” Shaffer, who correctly predicted in February that bullion would drop to $1,538, said in a telephone interview. “The downward trend may resume after the brief rise. The first resistance will be at $1,400.”

Fifteen analysts surveyed by Bloomberg expect prices to rise this week, 11 were bearish and three were neutral. Gold-coin sales by the U.S. Mint are poised for the best month since December 2009, and the U.K. Mint said purchases tripled. Premiums paid by jewelers in India, the biggest importer, to secure supply surged as much as fivefold in 10 days, according to the Bombay Bullion Association.

“Physical demand has helped gold claw some of the losses,” Shaffer said.

Holdings Drop

Investors cut assets in gold-backed ETPs to 2,283.6 metric tons on April 26, the lowest since October 28, 2011, data compiled by Bloomberg showed. Hedge funds and other money managers have accumulated their second-biggest bet against gold on record, holding 69,726 so-called short contracts as of April 23, government data show.

Goldman Sachs Group Inc. said April 23 it closed a bearish recommendation, while saying a further slump is likely.

“Our bias is to expect further declines in gold prices on the combination of continued ETF outflows as conviction in holding gold continues to wane,” analysts included Jeffrey Currie, the head of commodities research, said in the report.

Prices may reach $1,050, Deutsche Bank AG said April 18, while Goldman is forecasting $1,390 in 12 months. Jim Rogers, who predicted a commodity rally in 1999, said he may buy gold if a bear market deepens and prices fall to $1,300 or below.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes.

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