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.
Some analysts said the downward pressure on the market might be short-lived and gold could rebound after consolidating.
But the market would need to convincingly break above key resistance at $950 in order to maintain upward movement.
“It still looks heavy at this point. The downtrend that we are seeing at the moment is probably going to start slowing down soon,” said Taso Anastasiou, technical strategist at UBS investment Bank.
“It’s approaching an important support level at $849.50. If it does provide a strong area of support, which I suspect could well be the case at least from a short term perspective, then what we may see is a bounce back up towards $910.”
Karen Jones, technical analyst at Commerzbank, said the market had eroded its four-month uptrend and would remain on the defensive, while capped by its six-week downtrend at $925.70.
Technical analysts said that despite a sharp decline in gold prices to four-month lows on Friday, long-term market sentiment remained bullish and the metal was expected to set new record highs above $1,000 an ounce this year.
“If the medium-term trend is intact, then I certainly would see gold breaking $1,030. And if we could go above that level, then $1,050, or may be $1,100, could be possible over the course of the year,” Anastasiou said.
Chartists said $850 and $950 were crucial technical levels. If the metal held $850 and breached $950 in the coming months, then prices may head back to the highs of $1,100 this year.
“Longer term, we are still bullish on gold and to really challenge that, it has to go below around $675. We are still looking for the $1,500 area in 6 to 12 months,” Roberts said.
Reporting by Atul Prakash; editing by Peter Blackburn