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Are gold bears retreating? Test ahead for January's rally

[LONDON] Gold is facing a test of strength after an early January rally lifted it back towards a band of resistance above USUS$1,250, a successful break of which could indicate it has bottomed out at its 2014 low.

Spot gold has risen 5 per cent so far this year to a peak of US$1,244 an ounce as wider market volatility prompted investors to buy bullion as a haven from risk, lifting it further from November's 4-1/2-year low of US$1,131.85.

It has struggled to recover since it plunged US$200 an ounce in two days in April 2013, ending a more than decade-long bull run.

Technical analysts, who study past price patterns to determine future ones, say gold will face resistance between its 200-day moving average at US$1,254 and the downtrend from its March 2014 high at US$1,269.

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They say that if prices break those levels, they could confirm a base at last year's low. "I suspect that we're trying to base, but we don't have enough evidence to say that we have based yet," Commerzbank's head of technical research Karen Jones said.

"In the first instance, gold would have to close above the downtrend, which is at US$1,269 today."

"In doing that, it would overcome the US$1,240 June low, the 200-day moving average, the 55-week moving average," she said.

"I would need to see a close above there, and then I think you would see it pick up to US$1,318."

That represents the 23.6 per cent Fibonacci retracement of the move down from 2011's record high, she said.

Gold consolidated for much of 2014, ending the year down 1.5 per cent. It held within its narrowest quarterly range since mid-2007 in the last three months of the year, with a high-low spread of just US$75 an ounce.

That may represent base-building necessary for another push higher, independent technical analyst Cliff Green said. "If we can clear the US$1,260 area, the activity that has been going on since October would be confirmed as a reverse 'head and shoulders' type of base, the implication of which would be for a move closer to the US$1,350 area," he said.

While gold is benefiting from market volatility, its status as a commodity makes it potentially vulnerable to a sector rout that has seen copper and oil slide to their lowest since 2009.

That will make upcoming chart resistance harder to overcome, analysts said.

"What I'm suggesting for the moment is that we're going to hold inside the range we've been in since October, either side of US$1,200," independent technical analyst Nicole Elliott said. "That's related to what's going on with other commodities, which are not bullish. Gold would need such a tremendous boost to overcome that, and I'm not sure it's going to find it."