The Hindu Business Line : COMEX gold may correct lower

Gold futures extended further, on inflationary worries, instability in the West Asia, and a declining dollar. More investor interest, especially long-term institutional players such as pension funds looking to the metal to diversify their portfolios and interest from central banks have further triggered bullishness.

Eagerness to invest in gold, a low-risk asset because of its inherent value, has soared in recent months. ETFs, which were created three years ago, permit investors to buy bullion with the same ease as buying stocks and without taking physical delivery of the precious metal.

COMEX gold futures moved higher as expected. Most of the near-term objectives have been met and it is interesting to note that the market has crossed most of the levels without any major resistance, indicating further scope on the up side. One minor resistance lies at $690 in the coming week.

As mentioned in the previous up date, strong resistance will be seen at $725 a long-term resistance level. However, heavily overbought conditions could cause intermediate tremors resulting in unduly sharp moves. Therefore, it is ideal to remain with the trend and identify potential support points for investment opportunities. Based on the current momentum, we now believe that third wave is still in progress in the bigger picture. A corrective fourth wave can be expected subsequently.

RSI is in the heavily overbought zone again indicating that it is due for a corrective decline. The averages in MACD are above the zero line of the indicator suggesting bullishness. Only a crossover of the averages below the zero line will signal a bearish reversal again. Prices are above the short-term 8 period EMA at $664, indicating short-term bullishness followed by the 34 period EMA at $619. Therefore, look for COMEX gold futures to test the resistance levels and subsequently correct lower.

Supports are at $674, 663 and 649. Resistances are at $690, 701.5 and 715.

(The author is director, Commtrendz Research, and in the advisory panel of Multi Commodity Exchange of India Ltd (MCX). The views expressed in this column are his own and not that of MCX. This analysis is based on the historical price movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

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