Gold Longest Below 200-Day Average Since ’01: Technical Analysis

Gold’s slide into a bear market that wiped $66 billion from the value of funds backed by the metal pushed prices into the longest run below their 200-day moving average since the 12-year bull market began in 2001.

The attached chart shows bullion has settled below the 200-day measure for five months since Feb. 11. That’s the most since the eight months to March 2001, the year gold began the longest run of annual gains in at least nine decades.

Gold is now heading for the first annual drop in 13 years after some investors lost faith in the metal as a store of value. Holdings in bullion-backed exchange-traded products fell 25 percent since peaking in December and reached the lowest in more than three years last week. Moving averages are used by some analysts and traders who study such charts to indicate trends or future price movements of a security.

“We’re in a downtrend in the short and medium term,” said Clive Lambert, the founding director of research and training company Ltd. in Billericay, England. “Back above $1,300, there’s a little bit of pressure off.”

Gold for immediate delivery slumped 23 percent this year in London to $1,285.52 an ounce. Prices, which set a record $1,921.15 in September 2011, entered a bear market in April and reached a 34-month low of $1,180.50 on June 28. The metal is the third-worst performer this year in the Standard & Poor’s GSCI gauge of 24 commodities, behind silver and corn.

Federal Reserve

Bullion’s drop accelerated after Federal Reserve Chairman Ben S. Bernanke said June 19 that bond buying could slow if the economy improves. He said July 10 that the U.S. still needs stimulative monetary policy, the same day minutes of a June meeting showed division among policy makers on when to slow and end asset purchases. The central bank buys $85 billion of Treasuries and mortgage debt each month.

The $1,285 to $1,300 area and $1,120 are “important” technical levels that may help support prices or accelerate declines in the short term, Lambert said. The $1,285 price is near the 38.2 percent retracement of the rally from 2001 through 2011, one of the levels singled out in so-called Fibonacci analysis. The $1,120 price is derived from a trend line drawn from the end of 2001 on a monthly log scale chart.

“Below $1,120, you’re talking potential down to about $890,” he said. “We have had some pretty nasty down moves and it could well be more of the same.”

A combination of resistance levels in the $1,320 to $1,340 area will probably spur selling and a climb above about $1,522 would be needed to provide a more bullish outlook, according to Barclays Plc. A drop below about $1,180 may push prices toward $1,150 to $1,100, it said in a report yesterday.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in an asset or security. Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low.

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