Gold’s rally from a two-year low may not endure as the metal will probably drop to test a key support at $1,227.20 by the end of the year, according to technical analysis by Commerzbank AG.
Bullion for immediate delivery rallied 4.8 percent in the past two weeks through May 3 after entering a bear market last month. The metal touched $1,321.95 an ounce on April 16, the lowest level since January 2011. Cash gold advanced 0.4 percent to $1,476.61 an ounce by 1:40 p.m. Seoul time.
The “current minor bounce” should be followed by a decline toward the support of $1,307.80 and $1,301.12, where the 2011 low and 50 percent retracement of the 2008-2013 increase are found, London-based analysts Karen Jones and Axel Rudolph said in a report last week. If the levels are breached, the 2009 high of $1,227.20 will become the next support, they said.
Gold slumped 12 percent this year after rallying for the previous 12 years. Holdings of global exchange-traded products backed by the metal have declined 14 percent this year to the lowest since October 2011.
In technical analysis, investors and analysts use charts of trading patterns and prices to predict changes in a security, commodity, currency or index. Support levels are marked by clusters of buy orders, according to technical analysts, who say that past moves may be used to predict trends.
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