Gold May Extend Slump to Lowest Since 2009: Technical Analysis

Gold is poised to extend losses to the lowest level in more than four years if it breaches a key support that was tested last week, according to Forex Capital Trading Pty.

The “$1,180 an ounce is the major level, so if it breaks below that then it’s really just a question of how much further it can drop,” Steven Dooley, the head of research, said by phone from Melbourne. A drop below that level will push prices to $1,150 “very quickly” and in the medium-term they will head toward $1,035, which was last traded in October 2009.

Spot gold reached $1,187.13 on Dec. 20, $6.63 short of a three-year low of $1,180.50 traded on June 28, after the Federal Reserve said it will reduce the pace of its monthly bond purchases. Bullion slumped 28 percent this year, set for the first annual loss since 2000, as U.S. stocks climbed to an all-time high and amid record outflows from exchange-traded products backed by gold. Prices will fall further as the Fed acts amid an improving economy, according to Goldman Sachs Group Inc.

“The break from $1,180 to $1,150 has the potential to be a 24-hour move,” Dooley said. “Low liquidity, major downtrend, important support. It really is all lining up for a potential massive move to the downside.”

Gold for immediate delivery traded at $1,200.93 an ounce at 12:36 p.m. in Singapore today. Prices last fell below $1,150 an ounce in April 2010. The metal will drop to $1,050 by the end of 2014, Goldman Sachs predicts.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index. Support refers to an area where buy orders may be clustered and resistance is an area where there may be sell orders.

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