Gold is now the most oversold that it's been since 1985 and is merely reverting to its historical average before it could rise again from its own ashes, according to The Short Side of Long, a blog that focuses on technical financial analysis.

The blog said a basic technical indicator, the simple yearly rolling average, also known as the 52-week rate of change, reveals the oversold condition for gold.

In the previous 12 years, the price of the precious metal ascended from a lowly $258 per ounce in 2001 to a high of $1,921 in 2011. The high last year was $1,886 before spinning into a serious decline.

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"The truth is, gold is going through a correction it was meant to have earlier, but never did," The Short Side of Long calculated.

"This type of behavior is very rare."

With such a spectacular 12-year increase, the possibility of a reversion to the mean "was always in the cards," the blog explained.

Before a rally last week, gold was down a hefty 27 percent during the previous 52 weeks, and gold miner stocks had fallen even more precipitously — 57 percent — during the same time period.

Similar dramatic declines in 1998, 2000 and 2008 eventually resulted in major bull markets, The Short Side of Long noted, although it estimated weakness could persist for a while longer.

"Mean reversions don't stop at equilibriums, as the markets always overshoot or undershoot," the blog concluded.

"Usually, the mean reversion occurs in the opposite direction as major rallies occur from oversold levels."

Gold rose nearly 4 percent last week on speculation the Fed would have to maintain stimulus measures following a two-week U.S. government shutdown that may have damaged economic growth, Reuters reported.

Tom Fitzpatrick, analyst at Citigroup's technical research unit CitiFX, predicted gold prices may go up alongside a weaker U.S. dollar, higher equities and lower U.S. Treasury yields.

"The price action across markets is clearly starting to reflect the risk that the Fed is less likely to taper its asset purchases in the near term," Fitzpatrick told Reuters.

ETF Trends, which follows the gold market closely, predicted the direction of the dollar and interest rates will drive the price of gold in the short run. Generally, when the dollar goes down, the prices of precious metals, which are calculated in dollars, tend to rise.

ETF Trends reported physical demand for gold– possibly from central banks as well as short covering — remains strong and there may be a shortage of actual supply.

"It seems clear the fact the U.S. debt issue has not been resolved, but only postponed, is accelerating central banks' and private investors' search for alternatives to the U.S. dollar as a reserve asset, with gold one of the few viable alternatives," ETF Trends said.

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