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Gold prices ended essentially flat Friday, reversing an early rally, as investors made cautious bets ahead of the Federal Reserve’s decision on interest rates next week. Gold hit its highest level in more than a year and the US dollar sank to a 15-year low on expectations the central bank will trim the federal funds rate on Tuesday. Some investors turned to gold to hedge against inflation. Friday’s weak economic figures further solidified expectations that the Fed will cut interest rates. For many investors, the question has shifted from whether the Fed will cut rates to by how much.

Comex December gold futures rose sharply higher in line with our expectations. As mentioned in the previous update, a successful daily close above $698 triggered a bullish signal. Key support is now at $708 followed by $698. Fall below $707 can either lead to a sideways consolidation or a corrective lower towards $698 levels. Resistance will be quite strong in the $628-635 zone from where a good downward correction is expected. However, there are positive signs in the bigger picture, which could finally open the way for the test of the all-time high at $850 and, therefore, regard corrective dips as opportunity to position longs again. We believe that the third wave could have ended at $732 and the current move being a fourth wave consolidation and the fifth wave has begun with potential targets at $765.

RSI is in the overbought zone indicating a minor correction in the offing. The averages in MACD are still above the zero line of the indicator suggesting bullishness to be intact. Only a cross-over below the zero line will be a clear bearish sign. Therefore, expect gold futures to test the resistance levels and correct lower subsequently.

Supports are at $708, 703 and 698. Resistances are at $718, 728 and 735.

Gnanasekar T.

(The author is the Director at Commtrendz Research and also 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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