BofA: 'GOLD BEARS BEWARE'

Business Insider

If you've been betting on gold this year, watching it fall day after day – including a few spectacular crashes, like the one we've seen over the past few trading sessions – has probably not been fun.

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gold

Thinkorswim

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As the daily candlestick chart at right shows, the shiny yellow metal hasn't spent many days in the green.

Today, the price of an ounce of gold dropped below $1200 for the first time since August 2010, hitting a low of $1196.10 this afternoon before bouncing back to current levels just above $1200.

BofA Merrill Lynch technical strategist  MacNeil Curry argues today in a note to clients that "further gold downside [is] limited."

"While Gold has been on a relentless downtrend, the weekly ADX (a measure of trend strength, not direction – see chart 1 for additional info) says further weakness is limited. Indeed, previous ADX readings of 50 have resulted in reversals of between 35% and 36% of the flat price," writes Curry. "GOLD BEARS BEWARE. For now, the downtrend remains for 1212/1200, but this decline is in its final stages. Bulls need a move above 1270 to indicate a base and turn."

The chart below shows the ADX, or "Average Directional Index," that Curry references.

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Gold and ADX

BofA Merrill Lynch Global Research, CQG


The second chart shows the potential support levels flagged by Curry.

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gold support

BofA Merrill Lynch Global Research, CQG




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