(Bloomberg) -- Gold’s rally since the start of the year, which returned as much as 19% at its peak, may be petering out now, technical charts show. Any setback should be viewed as a correction, but could see the precious metal slide initially toward its 21-day moving-average price at $1,185 an ounce, Bloomberg Technical Analyst Sejul Gokal writes.
The so-called moving-average convergence-divergence, known as MACD, is poised to cross lower this week for the first time since early December, when gold spot price traded around $1,062. The metal is now trading near $1,227.
Technical support levels now coming into focus include the $1,185 to $1,181 area, which represents both the 21-day moving average and the 38.2% Fibonacci retracement of the December-to-February rally. Further lower, the $1,161 to $1,155 region marks the weekly conversion line as well as the 50% retreat of December-February rally, which is potentially as far as it may fall.
The nine-week relative-strength index is now retreating from levels above 70, which signal the metal was overbought. The weekly ichimoku momentum line, which represents current spot price shifted back by 26 days, is facing resistance from the weekly cloud, another sign that the rally has potentially run its course.
Still, a close above the $1,240 high seen on Feb. 18 would anticipate a re-test and possible breaks of the Feb. 11 high at 1,264. However, such a move may carry a lower momentum reading, fueling the risk of a bearish divergence between spot price and the MACD.
Gold’s pullback from its Feb. 11 peak has coincided with a slowdown in stock gains for the metal’s miners, represented by the NYSE Arca Gold Bugs Index, relative to the broader market. That is illustrated by a narrowing differential between the MACD line and its signal and the falling slow-stochastics.
Despite the recent fatigue in prices, the bigger picture remains bullish for gold and its miners.
Relative to the New York Stock Exchange Composite Index, gold miner stocks have surged past the top of a falling trend- channel dating back to 2013, confirming an end to the underperforming trend versus the broader market.
Gold spot price has broken out above the weekly ichimoku cloud in mid-February. Furthermore, the surge above 1,192 ends a pattern of lower highs in place since 2012.
The ichimoku momentum line, while confronted by cloud hurdle, is staying above prices seen about a month ago, a sign that medium-term momentum remains constructive. In the long run, goldis expected to rise toward the $1,333 to $1,341 area, which marks the 38.2% Fibonacci retracement of the metal’s decline from 2012 to 2016, as well as the 200-week moving average.
Note: Sejul Gokal is a technical strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.