Trading Post

February 12, 2013 11:31 am

Gold bugs beware dreaded ‘death cross’

Traders position to cash in on bullion’s move lower

News of North Korea’s latest nuclear test helped gold rally in early Asian trading on Tuesday. But the “haven” bounce proved brief.

By mid-session the precious metal was again flirting with five-month lows.

Thin trading during the Lunar New Year holiday coinciding with another break below the 200-day moving average – currently $1,664 – help deliver the latest leg lower.

It also leaves bullion below the support level of $1,650 just as technical analysts will start worrying about the potential for a “death cross”.

That occurs when the 50-day moving average, now around $1,673, drops through the 200-DMA.

Traders may position to exploit such a move, thereby exacerbating it – and as such the death cross is considered a negative signal. (The clue is in the name.)

Gold bugs must be getting exasperated by this price action, especially given that central banks continue to be supposedly bullion-supportive in their ultra-loose policies.

But those who bought gold relative to yen have benefited from the focus on the Bank of Japan’s largesse. At Y155,000 an ounce, gold is only 2 per cent off its high.

jamie.chisholm@ft.com

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