The Hindu Business Line : Gold futures may rise before fall

Gold futures ended higher on short covering before the weekend. Among the two main drivers, currency and energy markets, the latter remained a prime motivation for precious metals. Gold shook off losses earlier on account of dollar strength after the September US employment figures painted a positive picture.

Gold, a hard asset that is expected to hold more value against inflation than the dollar, was down alongside oil most of the week. Though there are expectations of oil to fall below $50, the threat of a production cut by the OPEC, which controls about 40 per cent of the global oil supply should keep prices well above $50 for the foreseeable future.

COMEX gold futures slid sharply lower testing some crucial supports. Doubts are being raised on the overall bullishness. As seen in the long-term chart, an important support point comes in between $548-550 levels being the fibonnaci 38.2 per cent retracement point.

An impulsive move could even break that on an intra-day basis, but we believe the downtrend will be contained at $541-42 levels. Resistance will be seen at $585-87 followed by $595 levels in the coming week and as long $608 caps the upside, we can look for a test of $550 levels.

We believe that the third wave could have ended at $732 and the corrective fourth wave still in motion. RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD are below the zero line of the indicator suggesting bearishness. Only a crossover of the averages above the zero line will signal a bullish reversal. Prices are below the short-term 8-day period EMA at $585 followed by the 34-day period EMA at $603. Therefore, look for COMEX gold to correct higher initially and subsequently fall lower.

Supports are at $563, 558 and 550. Resistances are at $587, 595 and 603.

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