The Hindu Business Line : Gold to test support levels

Comex gold futures ended slightly higher on Friday, rebounding from three-week lows. Gold investors, including those in the recently hot exchange-traded-fund market, are pulling out of the metal and returning to stocks as some see the US economic outlook brightening and the dollar putting in a bottom.

Gold’s safe haven sparkle could be fading as markets start to believe that the worst of the liquidity crisis might be over. Gold responded with only modest gains, when the euro and crude oil hit record-highs on Tuesday.

Comex April gold futures fell sharply lower in line with our expectations. As mentioned in the previous update, there are some indications in the big picture now for a large downward correction. A potential head and shoulder is in the making. Daily close below $875 could now open the way for a huge fall towards $830 or even lower towards $795 levels.

Rallies to $908/10 followed by $925 could find good resistance in the coming sessions. We believe that the third wave could have ended at $1,033 and the fourth wave is in progress right now. We could now be tracking a wave four A-B-C in progress and once the correction ends, a potential fifth-wave impulse could be in the making. The RSI is in the neutral zone, indicating a negative divergence, a sign of possible intermediate top, one of the reasons for our expectations of a large downward correction.

The averages in MACD have gone below the zero line of the indicator, suggesting a bearish reversal. Only a crossover above the zero line will now restore confidence for bullishness ahead. Therefore, expect gold futures to test the support levels.

Supports are at $872, 850 & 830. Resistances are at $908, 925 & 936.

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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