Gold’s Sell Signal Strengthens Near 2013 Low: Technical Analysis

Gold, shown by a technical indicator to be in a bearish trend the past month, fell below a Fibonacci level that suggests prices may decline to this year’s low of $1,180.50 an ounce, according to analysis by Commerzbank AG.

The attached chart shows the directional movement indicator minus line crossed above the plus line on Oct. 31, indicating a sell signal, and the ADX line was above 40 today, seen as a sign of a “strong” trend, said Commerzbank analyst Karen Jones. Prices dipped below a level of about $1,234 today, the 78.6 percent retracement of the rally from June 28 to Aug. 28, one of the levels singled out in Fibonacci analysis.

“Gold is starting to erode its 78.6 percent retracement and is starting to erode the end-of-November low,” Jones, based in London, said today by phone. “Where it closes today will be key. If you close below the 78.6 percent retracement it means that the pressure’s back on the downside and likely to retest support at the July 5 low of about $1,208 and the June 28 low at $1,180.”

Gold is set for the first annual drop in 13 years as some investors lost faith in the metal as a store of value and on speculation the Federal Reserve will slow stimulus as the economy strengthens. It’s the third-worst performer this year in the Standard & Poor’s GSCI Spot Index of 24 raw materials, after corn and silver.

Gold for immediate delivery dropped as much as 2.2 percent to $1,225.43 an ounce today, the lowest since July 8, and traded at $1,228.05 by 4:38 p.m. in London. The metal fell below the Nov. 25 low of $1,225.55. It slumped 27 percent since the start of January and is about 4 percent above the 34-month low of $1,180.50 set June 28.

Technical Analysis

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

Fibonacci analysis is based on a theory that prices tend to drop or rise by certain percentages after reaching a high or low. The ADX is the moving average of the directional movement indicator, a theory developed by J. Welles Wilder in 1978 that measures how far a security moves from an average price range calculated from second to second.

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