Bears hold sway with gold at key $850 pivot

By Atul Prakash - Analysis

LONDON (Reuters) - Gold prices are hovering at a key pivotal level of $850 an ounce and the next move could be down and set the near-term trend, chartists say.

A recent sell-off to four-month lows below $850 an ounce -- the high set in 1980 -- has weakened gold's near-term technical outlook and a failure to hold above this crucial level may trigger more investor liquidation, they added.

"I don't think the correction is over by any means. Short term, we could still go lower," said Phil Roberts, technical analyst at Barclays Capital.

"We are coming to an interesting juncture around the $850 area. If the market is to recover strongly, then you would expect it to find support around that level," he added.

Spot gold has fallen 18 percent from a record high of $1,030.80 hit on March 17. It was quoted at $854.25/855.25 at 10 a.m. EDT after falling to a low of $845, against $850.25/851.65 in New York late on Thursday.

Technical analysts, who track charts to predict prices, said the market was struggling to find a base and the risk was that if prices fell below $835, then they could slip towards $790.

"Short term, it still looks under pressure. If I am wrong and we start to break much through $850-$845, then there is room for it to head all the way back down to around $770 which would be the next area of support," said Robin Wilkin, technical analyst at J.P. Morgan.

DOWNTREND SLOWING ?