Gold May Break Out to Record—Grabham
Source: Bloomberg, Glenys Sim (9/1/09)
"Gold may advance to a record $1,325 an ounce if it first breaks out of a symmetrical, triangular pattern. . ."
A so-called topside breakout would be indicated by a close at more than $980.85 an ounce, Darran Grabham, the bank's technical analyst, wrote in a note yesterday. That would signal a short-term bull trend to at least $1,100 an ounce, he said. Gold traded today at $952.80.
In addition to the triangular pattern, gold rising to more than this year's peak of $1,006.29 would "confirm the completion of a continuation head-and-shoulders pattern—the eventual target is $1,325," Grabham wrote. The precious metal's record stands at $1,032.70, which it touched on March 17, 2008.
A head-and-shoulders pattern is formed when a commodity makes three consecutive peaks, with the middle being the highest. It forms during a series of increases over time, according to technical analysts, who say that past moves of an asset may be used to predict future trends.
Symmetrical triangle patterns are unpredictable, and gold may tumble if it declines to less than the support trendline at $935 an ounce, Grabham wrote. "The ensuing sell-off is likely to encounter support around the $906.50 level, before a break lower yields a move to a secondary objective of $890," he added.
"The minimum target of the triangle is highlighted at $850, with potential for the bear trend to test the corrective low recorded in January," he wrote. Gold traded as low as $802.59 that month.