Charting Asia

Bullion set for further retreat, charts show

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Gold prices have fallen about 7 percent since its 2014 high last month, but brace for further losses as the downtrend remains intact, according to technical analysis.

The Comex gold chart developed a strong rebound from support near $1180 in late December, but that was not a double bottom rebound so there was a low probability of an imminent uptrend.

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The fact is, that the support level rebound pattern (see chart) is a temporary rally within the downtrend environment. It shows a weakening of the downtrend, but not a trend change.

It signals a shorter term long-side trade where traders take profits as the resistance level near $1400 was reached. Investors who used this support rebound analysis sold gold as it moved near to the $1400 resistance level. They anticipated a continuation of the downtrend and now watch for another test of support near $1,180.

Historical resistance is near $1,400 but the rally had two other resistance features to overcome. The first resistance feature was the long-term downtrend line starting from the high of $1,799.80 in October 2012.

The second anchor-point for this trend line is the high of $1755.90 in that year. The retreat from the year-to-day high at $1,392.10 in on March 17 is the third anchor point for the long term downtrend line.

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This downtrend line is significant because it will also act as a resistance level for any future rally rebound.

The second resistance feature is the upper edge of the long germ group of Guppy Multiple Moving Averages near $1,383. The wide separation in the long term GMMA shows investors are not confident the rally can change to an uptrend.

The gold chart shows two support levels. These are the upper and lower levels a support band. The upper level of the support band is near $1,260. The lower level of the support band is near $1180.

There is a high probability the gold price will retreat to inside the support band and possibly retest the support level near $1,180. This will show a triple test of the support level near $1180. A rebound rally from this level may develop into a second test of the strength of the long term downtrend line. A breakout above the value of the downtrend line is bullish.

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A retest of support near $1180 is not a triple bottom pattern. Triple bottom patterns are found at the end of prolonged downtrends and usually appear near to long term historical lows.

On a monthly chart, the $1,180 level appears in the upper third of the long term gold uptrend that started from near $600 in 2006. The $1,180 level is not a long term historical low. A triple bottom also usually forms on a historical support level. The historical support level for gold is near $1150.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders – He is a regular guest on CNBCAsia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.