The Hindu Business Line : Gold futures to test support, rise

Gold futures hit a quarter-century high on fund buying, weaker dollar, but settled off its highs erasing gains made during the week on weekend profit-taking. A fall in copper and base metals and softer crude oil, helped push down silver and gold towards the closing.

COMEX gold futures moved in line with our overall expectations. Prices climbed above the important technical objective of $725 and found good resistance at the horizontal trend line point at $731-32 as seen in the chart above. A corrective dip to $695 or even lower to $687 looks likely due to heavily overbought conditions.

However, this should not be construed as a sign of weakness, as the trend remains decisively bullish. Only a move below $658 will trigger a sharp sell-off. Therefore, it is advisable to stay cautious and look for turning signs near the support levels for investment opportunities again. 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 RMA at $695, indicating short-term bullishness followed by the 34 period EMA at $642. Therefore, look for COMEX gold futures to test the support levels and rise higher again.

Supports are at $705, 695 and 687. Resistances are at $725, 740 and 774.

(The author is a director at 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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