another big selloff coming for gold

8:30 am
Apr 29, 2013
Commodities

Another Big Selloff Coming for Gold


By Tomi Kilgore
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Gold’s bounce could last a while longer, but technicians believe the bigger downtrend remains very much alive.

It’s been two weeks since gold prices staged a historic plunge. Front-month gold futures fell $203.70, or 13%, in two days, to settle at a two-year low of $1,360.60 on April 15. Since then, prices recovered to a high of $1,484.80 in intraday trading on Friday, before pulling back to $1,453.60 at Friday’s settle.

While technicians say gold could continue to bounce around in a relatively narrow range over the short term, they believe another big selloff is coming.

The rebound “hasn’t done anything to undo the damage done over the past week and a half,” said MacNeil Curry, head of global technical strategy at BofA Merrill Lynch Global Research. If anything, he said, the low-volume bounce off the lows has reinforced the negative technical bias.

“Volume traditionally follows the trend, so the [recent] low volume says the trend is still very much to the downside,” Mr. Curry said.

He thinks gold could eventually fall below the previous lows and test key support in the $1,250-$1,300 range before bouncing again.

Some technicians think it could be a while, even months, before that next big downleg comes, but recommended investors keep a negative trading bias until it does.

Larry Berman, co-founder and chief investment officer at Toronto-based portfolio management company ETF Capital Management, thinks gold will “trade between the mid-$1,300s to the low $1,500s” until the summer, before the downtrend reasserts itself. In the meantime, he recommends getting short, or making bearish bets, above $1,500.

“The correction period has not been played out yet,” Mr. Berman said. “There’s a tremendous amount of overhead supply from the mid to low $1500s, that I don’t think will get taken out,” Mr. Berman said.

Barring some major unforeseen event that might trigger a flight to safety, such as a crisis in North Korea, he sees support below $1,300 eventually giving way. If it does, he sees a downside target around $1,150.

http://blogs.wsj.com/moneybeat/2013/04/29/another-big-selloff-coming-for-gold/