Gold Chart Watchers Warn of Bigger Losses as Prices Slump

For the past 16 months, gold rebounded every time prices neared $1,180 an ounce. Now the support has finally given out.

That’s a sign to analysts following chart patterns that losses will probably worsen as the end of stimulus from the Federal Reserve drives the dollar higher. Commerzbank AG says gold may retreat 4.8 percent to $1,092 in about a month and Clive Lambert, a technical analyst at Ltd., pegged the next target at $1,089.

“The break of $1,180 was very clean and we haven’t really looked back since,” Lambert said today by phone from Leigh-on-Sea in England, east of London. “There’s no immediate support and we’re sticking with the trend.”

Gold investors have seen $5.9 billion wiped from the value of exchange-traded products in the past two weeks as the selloff that began in mid-July accelerated. Bullion reached a four-year low today as the dollar strengthened after Republicans gained control of the U.S. Senate and Bank of Japan Governor Haruhiko Kuroda said the BOJ could add more stimulus.

Price declines halted near $1,180 in June 2013, December and in early October. Gold traded at $1,147.55 by 5:31 p.m. in London, after sliding to the lowest since April 2010, according to Bloomberg generic pricing. The metal has declined 40 percent since reaching a record $1,921.17 in September 2011.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in an asset or security.

Fed Outlook

Bullion slid 28 percent in 2013, after advancing for a 12th year in 2012 as the Fed bought debt and kept interest rates at a record low. Policy makers ended bond-buying last month as the economy strengthened, adding to the case for higher borrowing costs.

Lambert’s target of $1,089 represents the halfway point of a rally from April 2001 to 2011. Karen Jones, a London-based analyst at Commerzbank, relied on a tool known as a pivot line over four decades to highlight her $1,092 target.

“There’s a good chance we will test and break through $1,092,” Jones said. “It’s going to get interesting because between $1,092 and $1,000, which is a psychological level and about where top of the previous range was, I think you should see some kind of stabilization.”

Price Target

Below $1,000, another target would be about $946, near the 78.6 percent retracement of the rally from 2008 to the record in 2011. It’s one of the levels singled out in Fibonacci analysis.

Lower prices have so far failed to attract buying though gold-backed exchange-traded products, with about $7.5 billion being wiped from the value of the holdings this year, data compiled by Bloomberg show. Investors are holding 1,643.4 metric tons through the funds, the least since August 2009.

There are signs that prices may have fallen too fast. Gold’s 14-day relative-strength index has since Oct. 31 held below 30, a level that suggests to some traders studying charts that prices may be poised to rebound. It was at 21.4 today.

“Quite often, when markets are strongly trending, they can remain oversold,” said Lambert. “Trying to pick a bottom because the market is oversold is very dangerous.”

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