Gold May Target $1,250 Peak, Standard Says: Technical Analysis

By Glenys Sim

May 26 (Bloomberg) — Gold may target a record $1,250 an
ounce as a continuation head-and-shoulders pattern may be
forming within a longer-term trend, Standard Bank Group Ltd.
said, citing trading patterns.

A break and close above $1,050.40 “provides warning that
an important breakout” has occurred, Darran Grabham, the bank’s
technical analyst, wrote in a note yesterday. 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.

“The positive implications are substantial, with the
minimum objective situated at $1,250,” Grabham wrote. “On the
downside, gold weakness through $864 turns the outlook bearish,
and the weaker trend could then continue towards $802.”

Gold for immediate delivery traded little changed at
$957.29 an ounce at 8:09 a.m. Singapore time. The precious metal
is down 7.4 percent from its record high of $1,032.70 on March
17, 2008.

In the near term, a negative bias is expected to dominate
in the days ahead as the positive trend has faltered in the $960
to $966.70 area, Grabham wrote.

“A decline into the $940 to $935 zone is anticipated, with
$935 regarded as an important support point over the next week
or so,” he wrote. “We expect gold to enter a period of
consolidation below $966.70, before a break higher occurs,
setting up a test on $980.” So-called support levels are where
buy orders are clustered.

“If $935 gives way — delaying the next move higher — the
sell-off could continue to $925, with $915 representing another
key near-term support level,” Grabham added. “Weakness through
$915 negates the positive outlook, exposing the market to the
$895 to $885 area.”

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