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COMEX gold futures ended higher on Friday on inflationary worries, surging crude oil prices and weakening dollar.

Despite a strong US jobs report the dollar got battered due to credit worries and unreported losses and US financial firms. Inflation concerns boosted gold as market participants worried that robust energy prices and more expensive import goods becaus e of a weak dollar could lead to rising prices.

COMEX December gold futures rose higher in line with our expectations. As we have maintaining, the current rally looks set to test $800 levels. Minor resistance is at $823 levels now.

Indicators lying in highly overbought conditions caution against aggressive longs. Typical sentiment will now invite market participants who have been left out of this rally to jump in even at current levels only to repent later.

There is good possibility to retest the all-time highs, however, caution needs to be exercised in light of heavily overbought conditions as a corrective move could unfold and volatility could be seen in the coming weeks. We believe that the third wave could have ended at $732 and the fourth wave consolidation to have ended at $665, and the fifth wave has begun with potential targets at $823 or even higher.

RSI is in the highly overbought zone cautioning against aggressive longs. 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 $802, 797 and 785. Resistances are at $823, 850 and 868.

Gnanasekar T.

(The author is the Director of 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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