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

Gold recouped earlier losses to regain $650 an ounce in light pre-holiday trading Friday, on the evacuation at the US Capitol in Washington after a report of gunfire. The bullish sentiment has been dampened due to the recent sell-off, but prices have managed to find good support on bargain hunting.

The return of the gold bulls is expected, once there is more value seen at lower levels. 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 have been steadily inching lower close to the important support level at $625-28. Crucial level to watch out for will be the $675 level and a daily close above this point should indicate resumption of bullishness. However, we favour a test of support at $625-28 a confluence point before the rise begins. It happens to be the fibannaci retracement level and a long-term trend support point as seen in the chart above.

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-day period EMA at $660, indicating short-term bearishness followed by the 34-day period EMA at $652.

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 658, 665 and 676.

(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.)

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