FOCUS: Gold Nearing Important Technical Chart Support Levels

(Kitco News) - Gold prices are nearing levels of technical chart support and how the metal acts at those values could determine the market's short-term direction. Technical chart analysts said gold's rally to all-time nominal price highs on Tuesday and subsequent break in price during the late North America trading session on Tuesday and in Wednesday's session should be watched closely. On Tuesday, the December gold contract on the Comex division of the New York Mercantile Exchange set an all-time high of $1,923.70 an ounce, but settled at $1,873.30, under the settlement price of $1,876.90 set on Friday. On Wednesday, values continued to erode. As of 12:45 EDT, December gold is trading around $1,825. The close under the previous day's settlement, combined with a move to an all-time high, is a bearish technical chart pattern known as a key reversal and can portend changes in direction. Mark Leibovit, chief market strategist at VR Gold, pointed out that a precious metal exchange-traded fund that he watches, ETFs Physical Swiss Gold shares ( SGOL ), put in a key reversal. The SPDR Gold Trust ( GLD ), the largest of the gold ETFs, also marked a key reversal. "Usually, we experience further follow-through in the direction of the reversal much as we've just seen in the past couple of weeks, but I cannot tell you that a major bout of selling is about to unfold…. Understandably, bullish sentiment had grown stronger in recent weeks, so perhaps we need to see a shakeout to calm things down," he said. Several technical chart analysts said gold prices may be trying to put in a double top on technical charts, citing the Aug. 23 high of $1,917.90 and Tuesday's high of $1,923.70, basis December futures. Adam Hewison, president and chief strategist with INO and, said the recent activity of the market making a high on Aug. 23, then breaking, making a new high on Tuesday, then breaking, should make investors cautious. "(It) created on Japanese candlesticks a bearish engulfing line, which is a bearish signal," he said. At the very least, said Dave Toth, director of technical research at RJ O'Brien and, gold "certainly didn't like prices up" in the $1,900 level. For the short-term Toth said the market is bearish, but for the long-term, the bull trend is still intact. What's important, he said, is to remember what the gold market has done in the past several years before reviewing the current action. "There's a word people need to be cognizant of when we look at the market and that's 'scale,'" he said. AREAS TO WATCH INCLUDE $1,705 Hewison said a close under $1,750 for the December contract would mark that gold has put in an intermediate top and that prices could range between $1,600-$1,700 for a while. Longer-term the trend is still positive, he added. The next critical level for support is $1,705 area for the December contract, which corresponds with about $1,702 in spot, said both Toth and Leibovit. That area is where gold prices arrested their fall from that Aug. 23 high. The low for the December futures contract on Aug. 25 was $1,705.40. From there prices rebounded. Leibovit said a break of $1,702 "opens up potential downside risk to $1,500 … I am not categorically predicting this will occur, but it could - so be prepared." Toth said this level is critical for two reasons. First, he said, a break of that area could mean a greater correction is underway as the market could look to retrace the rally that started from the July low of $1,478 in the spot ($1,481 basis December futures). Second, he said, is that bullish sentiment is very high in gold futures. He said that measures the sentiment of managed-money accounts according to data released by the Commodity Futures Trading Commission in its weekly commitment of traders report. They measure managed-money accounts to be 97% bullish, which is about what they have averaged this year. "That sounds high, but sentiment doesn't matter when you're in an uptrend. But if we break $1,705, then we break the uptrend and then it becomes applicable to the sentiment level," he said. If sentiment changes, then that could cause greater breaks in price as speculators sell long positions, he said. He said the last time gold had a significant correction, during December 2009 to February 2010 when prices went from $1,227 to $1,044, sentiment went from 98% to 92%, which showed that not a lot of money managers left. "All the corrections of the past three years have been relatively minor, which shows you how massive this bull market has been," he said. That's why trying to estimate how much of a break gold could see is difficult, "especially because of the magnitude of the rally," he said. For a related story see: "FOCUS: Gold Loses Some Luster From German Court Ruling; Analysts Expect Shine To Return." By Debbie Carlson of Kitco News; Allen Sykora contributed to this article

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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