Has gold got more shimmer to shed?

At a time when international central banks are printing money in massive amounts and governments, Australia included, are borrowing heavily, one could expect to see gold in demand as investors fear currency debasement. But the opposite has happened, with the gold price falling for most of this year. The fall has become particularly dramatic in the past few weeks.

Using a longer time frame, we see a different picture. As shown by this week's charts, produced by Alan Clement, a member of the Australian Technical Analysts Association, gold has enjoyed massive price gains this century. As the quarterly chart shows, it has run up almost 600 per cent, from $US257 an ounce in 2001 to a quarterly high of $US1773 in 2012. On the daily chart (not shown here), gold peaked in September 2011 at $US1907.

The monthly chart demonstrates how the gold market took off after the global financial crisis as investors sought safe havens. The commodity price boom that followed the Chinese government's massive post-GFC stimulus pushed gold further.

In 2012, as commodity prices began to weaken and the sharemarket began to climb, sentiment in the gold market changed. It appears that funds slowly began to move away from gold in favour of shares, and the gold price dramatically capitulated, falling through what had been a support level of $US1574 at the end of March this year.

The question is: Has gold got further to fall? Given that steep rises such as those gold has enjoyed are usually followed by heavy falls, Clement sees gold's decline as having considerable momentum behind it, and it is therefore likely to continue for some time.

Using the Fibonacci number theory, we can point to likely levels of support on the charts. On the quarterly chart, if we measure the levels from the 2001 low to the 2012 high, we see the likely first port of call would be a 38 per cent retracement at about $US1200. On the monthly chart, measured from the GFC low to the 2012 peak, the 62 per cent retracement level is $US1160, which ties in with the target on the quarterly chart.

Generally, when Fibonacci levels on different time periods for a market align, it gives increasing weight to their potential as support levels, Clement says. In the short term, he says, gold looks oversold, so we should expect a bounce soon.

"However, it would be folly to think that any increase in price was any more than a retracement in a down trend. Gold has clearly had a lot of technical damage done to it, and it will take many months - if not years - to repair before any sustained move higher," he says.

Over the longer term, gold's trajectory will be influenced by other markets, such as commodities and stocks. While medium-term weakness is expected, Clement says gold would need to fall below about $US1000 to break the long-term up trend on the quarterly chart. That represents a 50 per cent Fibonacci retracement from the peak. Investors can gain exposure to gold on the long and short side using futures, options, ETFs and CFDs. Or, you can hold the metal.

This column is not investment advice. rodmyr@gmail.com