By Frank Tang
NEW YORK, May 29 (Reuters) – An imminent “death cross” on the chart of spot bullion is stirring memories among gold traders of the metal’s plunge in April 2013, which was preceded by such bearish formation.
Spot gold’s 50-day moving average is within $1 of breaking below its 200-day moving average, a phenomenon known as a death cross, when the short-term momentum has turned more negative than long-term trend, Reuters data showed.
This week, gold broke out a “pennant” formation going back to April, after prices marked their biggest daily loss in over five months on Tuesday. Analysts said that left the market vulnerable as it breached a key support level near $1,260 an ounce. (Full Story)
Gold has dropped $40 or 3.5 percent in its last three sessions. On Thursday, it XAU= was down 0.2 percent to around $1,256 an ounce.
Bullion’s last death cross was recorded on Feb 19, 2013, about two months before the yellow metal prices collapsed after a record two-day $225 drop on April 11 and April 15.
“The death cross serves as a good way to confirm that the underlying downward trend remains in place,” said Adam Sarhan, CEO at Sarhan Capital.
The metal will likely fall further in a bear market because of an inverted cup-and-handle pattern that started in February, and this week’s breakdown below a long-term upward trendline connecting the lows of $1,181 in December and $1,268 in April, said Sarhan.
“What we are seeing now was a series of emerging technical sell signals which strengthen the bearish case for gold,” he said.
Other analysts said gold should find support if prices can stay above its double-bottom low near $1,180 an ounce which was held in June and December last year.
“As long as we are holding above $1,181, gold is forming a base before eventually moving higher,” said Tom Fitzpatrick, analyst at Citigroup’s technical unit CitiFX.
Fitzpatrick pegged gold’s next major support at $1,232 an ounce, which was near January’s low and marked its 76.4 percent Fibonacci retracement from the rally between December and March’s high of $1,392.