Gold Volatility Squeeze Means Rise to $1,900: Technical Analysis

A so-called volatility squeeze in gold prices may signal a rally to $1,900 an ounce for the first time in more than 16 months, according to technical analysis by Steel Vine Investments LLC.

Gold futures for April delivery have traded in a $200 range on the Comex in New York since July 25, leading to a contracting-triangle pattern of lower highs and higher lows that may mean the precious metal will rebound, said Spencer Patton, Vine’s chief investment officer.

“When we get a breakout from a volatility squeeze, you get a big move in the direction of the breakout, and the odds favor the upside,” Patton said in a telephone interview from Chicago. The pattern suggests that “the break-out is imminent,” he said.

The April futures rose to a seven-month high of $1,801.80 on Oct. 5 after reaching a low of $1,596.90 on July 25. The contract was down 0.2 percent today at $1,676.10 as of 12:26 p.m. in New York. By August, prices may rally 13 percent to $1,900, the highest since Sept. 6, 2011, when the most-active futures surged to an all-time high of $1,923.70, according to Patton.

Gold rose 7 percent last year, the 12th straight annual gain, as central banks from the U.S. to China took steps to stimulate their economies.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes.

To contact the reporter on this story: Debarati Roy in New York at droy5@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net