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Chart: Gold looks headed for $980 per ounce

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Gold has dropped below its key support level near $1150, taking it to a new five-and-a-half-year low and setting the next support target near $980.

The historical support level for gold is near $1180 so when the price dropped below this level last November many traders expected the price to continue falling towards the next support level near $980. This did not develop and gold rallied and moved sideways.

Historical support near $1180 failed and a new support level developed near $1115, which created a strong support band between $1180 and $1115.

Then in March 2015 gold again fell below $1180 and traders waited for a further fall but the price rebounded. In recent weeks gold has fallen below $1180 and then below the lower edge of the support band between $1115 and $1180, which means that it is headed to $980. The gold price behavior can be understood by using trading band analysis and a weekly chart.

The gold price moved sideways for two years starting in June 2015. And between June 2013 June and January 2015 the sideways movement was below the long-term trend line. The fall below the lower edge of the trading band near $1150 signals the continuation of the long-term downtrend.

The long-term group of GMMA averages remain well separated and moving downwards. The rally attempts in 2014 March, July 2014 and February 2015 have been not been able to stay above the upper edge of the long-term GMMA, which confirms the strength of the downtrend. Since March 2015 in particular the lower edge of the long-term GMMA has been a strong resistance feature.

Read MoreGold has potential to plummet to $700: Strategist

However the bearish features on the gold chart showed there was a higher probability of a future fall below support near $1150 and a continuation of the downtrend towards historical support near $980. These three features are:

1. The strength of the long-term GMMA group of averages, which remain well separated. Compression in this group is required before a new uptrend can develop.

2. The failure of the short-term group of moving averages to break above the upper edge of the long-term group of averages, which creates a bearish environment.

3. The long-term downtrend line, which acts as a resistance level in a falling market. When the value of resistance is lower every day, the market slides down the downtrend line until it reaches the horizontal support level near $980.

We use the ANTSSYS method to trade both the sustained falls below the support levels.

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