The Hindu Business Line : Gold to test support levels, rise

Comex gold futures ended higher on Friday, recovering from a four-month low on prospects of a rebounding US economy and a smart recovery in the base metals and crude oil complex. The dollar jumped to a two-month high versus a basket of major currencies after data showed that the US economy lost just 20,000 jobs in April, fewer than economists had forecast. In the near-term, gold still looks under pressure due to a rebounding dollar, but the long-term fundamentals continues to be intact as inflationary fears will underpin gold’s appeal as a hedge against it.

Comex June gold futures fell 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 has opened the way for a fall towards $830 or even lower towards $795 levels. Rallies to $875 followed by $883 could find good resistance in the coming sessions. We believe that the third wave could have ended at $1033 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 cross-over above the zero line will now restore confidence for bullishness ahead. Therefore, expect the gold futures to test the support levels and rise higher again.

Supports are at $845, 830 & 795. Resistances are at $875, 883 & 895.

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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