The Hindu Business Line : Gold may test resistance level

Gold futures rallied sharply higher on Friday on short-covering finishing at a three-week high in a holiday-shortened session. Month-end and quarter-end window dressing and speculative buying before a US market holiday on Monday and Tuesday, also added support to the rally.

Expectation that the Fed is close to the end of its rate-hike cycle seems to have drawn investors back towards precious metals. The threat of oil-driven inflation is also set to keep gold well under-pinned in the coming weeks as oil prices threaten to head higher above recent highs. COMEX gold futures moved higher against our expectations. Daily bear flag failure is a bullish sign in the short-term, with potentials to test $633 or even higher to $645. A sideways correction or a trend reversal can be seen at $630-33 levels. We favour a corrective dip to $610-12 or even lower to $605/07 as an ideal opportunity for investment this week.

Only a daily close below $597 will neutralise bullish expectations for the week. However, only a move above $655 will hint at a sustained bullish trend. We still believe that the third wave could have ended at $732 and the corrective fourth wave in progress. Currently, we could be in a wave "B" correction after Wave "A" ended at $545. The beginning of the fifth wave can be confirmed after a move above $688.

RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD are still below the zero line of the indicator suggesting bearishness. Only a cross-over of the averages above the zero line next will signal a bullish reversal again. Prices are above the short-term 8-day period EMA at $593 indicating short-term bullishness followed by the 34-day period EMA at $610. Therefore, look for COMEX gold futures to test the resistance levels.

Supports are at $612, 605 and 597. Resistances are at $620, 628 and 635.

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