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

Gold futures ended lower on Friday erasing most of the gains made during the day. Despite a weaker dollar and the war between Israel and Hizbollah continuing, gold prices failed to follow-through higher. Gold spiked to a two-week high in early trade after the non-farm payrolls rose just 113,000 in July and the jobless rate increased to 4.8 per cent from 4.6 per cent a month earlier, raising expectations that the Federal Reserve might halt its two-year-old campaign of dollar-boosting interest-rate rises, next week.

Oil prices though took a breather after the tropical storm aiming Gulf of Mexico weakened erasing any supply concerns in the US.

COMEX gold futures rose higher in line with our expectations. Prices are now expected to consolidate in a range and then breakout higher again. Strong support will be seen at $647-48 levels and a failure to find support could hint at a deeper correction to $628-30 levels.

We favour $647-48 to hold and then break higher, immediately targeting $680 levels followed by the psychological resistance at $700. We believe that the third wave could have ended at $732 and the corrective fourth wave possibly ended at $546.

The current impulse shows signs of fifth wave in progress. It could also become an irregular wave "B" if prices fail to go above $680 and subsequently dip below $594, which we do not favour.

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. Prices are above the short-term 8-day period EMA at $649 indicating bullishness followed by the 34-day period EMA at $634. Therefore, look for COMEX gold to test the support levels and rise higher subsequently.

Supports are at $648, 636 and 625. Resistances are at $668, 674 and 680.

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