* 50-day moving average nearly falls below its 200 DMA
* Investors not worried about inflation, hurts gold
* Near-term rebound possible as market turns overly bearish
By Frank Tang
NEW YORK, Feb 19 An ultra-bearish technical
formation on gold charts suggests a further pullback could be on
the way as a steadier global economic outlook and fading
concerns about inflation reduce the investment appeal of
On Tuesday, spot gold was on the brink of forming a "death
cross," when its 50-day moving average broke below its 200-day
On Tuesday, gold eased 0.3 percent to around $1,604
an ounce. Its 50 DMA was at $1,665.19, hovering about 10 cents
above its 200 DMA.
The most recent death cross formed on April 12, 2012, and
gold prices dropped $150, or nearly 10 percent, in the following
Gold, used by investors as an inflation hedge and a safe
haven against economic uncertainty, fell 3.5 percent last week
for its biggest weekly drop since May 2012.
Since October, bullion has been steadily falling as
investors flock to U.S. equities on signs of a recovering U.S.
housing market and a brighter global economic outlook. The S&P
500 rose to a five-year high on Tuesday.
Some investors, however, remain nervous about a sluggish
U.S. job recovery despite ongoing economic stimulus by the
"The threat of inflation is so far removed from investor
concern, while deflation is more of a worry for investors and
central banks, and that's what's hurting gold," said Adam
Sarhan, chief executive of Sarhan Capital.
Gold's repeated failure to break above its 50 DMA and its
multimonth downward trend line also confirmed the bearish case
for the metal, Sarhan said.
News that notable institutional investors including
Allianz's PIMCO, George Soros and Julian Robertson cut
their stake in the world's largest gold exchange-traded fund,
SPDR Gold Trust, during the fourth quarter dampened
Also, the need for gold as a currency hedge, widely
advocated by prominent hedge fund managers such as John Paulson,
has significantly lessened as a chaotic break-up of the euro
zone appears less likely at least for now, analysts said.
The latest industry data showed that investors have turned
more bearish. Managed money's futures and options net length, or
their bullish bets, fell to their lowest since December 2008,
the CFTC's Commitments of Traders report showed on Friday.
One veteran gold trader said, however, that the growing
number of bearish bets suggested gold could rebound in the near
term despite the ominous technical indicators.
COMEX gold options floor trader Jonathan Jossen said that
one of his clients had sold all of his put options to buy calls
last Friday when gold lost more than 2 percent to briefly dip
below $1,600 an ounce.
"We've been down too many days in a row not to have a fake
out," said Jossen, referring to a market move that tends to
catch investors by surprise.