How the 'vomiting camel' could sink gold to Rs 16700/10 gms

Moneycontrol Bureau

Having witnessed a multi-year bull run, gold -- Indians’ favourite asset class alongside property -- has been caught in a vicious bear grip.

Since topping out at about USD 1,900 per ounce in 2012, international gold prices have fallen about 40 percent to USD 1,150, with analysts attributing the fall to dimming allure for the so-called ‘safe haven’ precious metal, as confidence in global economic prospects slowly but steadily increased following the global financial crisis.

The effect was less severe for the India price of gold, with about a 22 percent fall from a peak of Rs 33,000 per 10 gm to about Rs 25,500 per 10 gm, with the depreciation in the rupee versus the US dollar cushioning the fall.

However, according to one technical analyst, the fall in gold prices is far from done. Trader Brian Kelly recently spotted a rare but what he claims to be a ‘dreaded’ chart pattern in the price of gold: the vomiting camel.

Technical analysts rely upon historical price charts of asset classes to look for various patterns to help them predict future moves.

In an article on CNBC, Kelly stated that according to the ‘vomiting camel pattern’ (see chart below), when combined with another technical indicator, the long-term price target for the yellow metal comes out to be between USD 700 and 880.

If the international price of gold does come down to Kelly’s average range price of USD 780 per ounce, it would result in a nearly 32 percent fall from current levels. Assuming the Indian rupee remains stable at current levels, a similar 32 percent fall should see the Indian price roughly falling to Rs 16,700/10 grams.