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Gnanasekar T.

Gold futures recovered sharply higher on Friday, supported by fund buying and a recovery in all other commodities. Holiday in the US markets on Monday also prompted players to unwind short positions ahead of the long weekend.

Despite weakness in the energy markets, gold prices remained quite stable throughout the week. Gold's ability to remain relatively stable despite a slump in oil price and the earlier rise in the dollar boosted sentiment. Lower prices attracted good physical buying interest leading to good support throughout the week.

COMEX gold futures rose higher after finding support at lower levels. A bear flag pattern has been broken on the upside, which is a bullish sign and expect prices in the coming week to continue higher to $632-33 levels. However, we still do not see this as a bullish reversal and expect the rally to exhaust itself in the $628-630 range and fall lower again.

Possibility of the bullish momentum extending to $639-640 cannot be ruled out though, before the fall, which is the trend line resistance point as seen in the chart above. We believe that the third wave could have ended at $732 and the corrective fourth wave still in motion. Break above $678 will signal the beginning of the fifth wave move.

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 to be intact. Only a crossover of the averages above the zero line will indicate a bullish signal. Prices are above the short-term 8-day period EMA at $619 followed by the 34-day period EMA at $624. Therefore, look to test the test the resistance levels and fall lower subsequently.

Supports are at 603, 595 & 580. Resistances are at 615, 627 & 632.

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