Gold losing its shine, price may drop further

GOLD’S 20-day moving average falling below its 200-day and its brief foray into a bear market suggest momentum has turned bearish and a further pullback could be on its way.

Bullion’s 20-day moving average (DMA) dipped below its 200 DMA last Thursday, in what technical analysts termed a “death cross”, as the short-term momentum has turned more negative than long-term trend. That could show that the current downtrend is pervasive.

“Any time there is a death cross, the market is telling us that the underlying strength has changed from bullish to bearish,” said Adam Sarhan, chief executive of Sarhan Capital.

Sarhan compared gold’s technical charts in December to a slow-motion train wreck, with the metal having plunged below its long-term upward trendline for the first time in three years and its key 200 DMA.

“When you start seeing a lot more bearish technical events occurring, more and more shorter-term traders are inclined to selling their positions,” Sarhan said.

Bullion has ended the year up 10 per cent, but this was its smallest annual rise in three years and in the final three months of the year, it notched up its first quarterly loss since the third of 2008.

Spot gold rose as much as two per cent to above US$1,580 (RM5,024.40) an ounce last Friday, but a day earlier they briefly dropped more than 20 per cent from its record high of US$1,920.30 set on September 6, flirting with the common definition of a bear market.

“A negative crossover in moving averages can be seen as a selling signal,” said Tim Riddell, head of ANZ Global Markets Research, Asia.

The last time a death cross clearly formed was in August 2008, following gold’s sharp rally towards US$1,000 (RM3,180) an ounce. The metal then tumbled to around US$680 (RM2,162.40) an ounce in October 2008, just two months after its 20 DMA plunged below its 200.

The S&P 500 index also formed a death cross in August but it managed to quickly recover losses. Other markets such as the euro headed for steeper fall after the bearish formation.

The metal enters the new year on an uncertain footing and appears to have lost its safe-haven status, moving in tandem with equities and other riskier assets.

“We think gold could struggle into the first part of 2012 and potentially drop into the US$1,300 to US$1,450 (RM4,134 to RM4,611) region,” said Mark Arbeter, chief technical strategist of S&P Capital IQ.

Selling accelerated in December as hedge funds scrambled for cash to meet client redemptions and European banks trimmed their gold holdings to raise capital. The latest data shows that investor bailout continues.

Managed money’s bullish futures position fell for a third consecutive week in the week to December 27, hitting its lowest level since early 2009, and open interest dropped to its weakest since April 2010, CFTC data showed last Friday.

Gold prices extended their winning run to an 11th year last Friday despite a year-end pullback, gaining 10 per cent from 2010 as investors sought refuge from the euro zone debt crisis amid worries about global growth.

US February gold futures on the Comex division of the New York Mercantile Exchange settled up US$25.90 (RM82.36) from the previous day at US$1,566.80 (RM4,982. 42), ending the year on a positive note as the metal rebounded from Thursday’s sharp losses.

At the end of 2010, gold closed at US$1,419.45 (RM4,513.84) an ounce.

Gold is one of the best-performing commodities of 2011, even though it recorded its smallest annual gain in three years. Bullion fell heavily in December, pushing the metal to the brink of a bear market, as hedge funds scrambled for cash to meet client redemptions and European banks trimmed their gold holdings to raise capital.

Managed money’s bullish futures position was at its lowest since early 2009, a sign that investors were bailing out of the market, data from the US Commodity Futures Trading Commission showed. Reuters

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Posted by admin on Jan 2 2012. Filed under Gold predictions. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry