The Hindu Business Line : COMEX gold futures may rise

Gold futures tumbled lower on fund liquidation and investors rushed to take profits wrapping-up the worst week for commodity bulls, since four years of growing interest in the asset-class. Comments by the US Treasury Secretary John Snow that the US was committed to a strong dollar and keeping pressure on China to make its currency more flexible also knocked gold prices by boosting the dollar.

Despite the recent sell-off in metals, continued support from supply/demand imbalances, rapid growth of the Asian economies and risk of inflation from higher energy prices and a weakening dollar should keep prices underpinned and raises no concern for an alteration in the long-term bullish outlook for metals.

COMEX gold futures fell lower breaking crucial support levels more than what we expected. The corrective move has been rather sharp and looks to alleviate fears that the trend could have turned bearish for gold. A weekly close below $658 does look like a bearish sign, but more important support is at $625-28 a confluence point.

It happens to be the fibannaci retracement level and a long-term trend support point as seen in the chart above. Our preferred view would be to look for strong support at $625-28 and only a failure to do so, would force us to abandon our overall bullish outlook and look for lower targets to $570 levels.

Based on the current momentum, we now believe that the third wave could have ended at $732 and the corrective fourth wave in progress. RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD are still above the zero line of the indicator suggesting bullishness to be intact.

Only a crossover of the averages below the zero line will signal a bearish reversal again. Prices are below the short-term 8 period EMA at $682, indicating short-term bearishness followed by the 34 period EMA at $651. Therefore, look for COMEX gold futures to test the support levels and rise higher again.

Supports are at $645, 633 and 625. Resistances are at $671, 683 and 698.

(The author is the director of 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.)

Gnanasekar. T

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