The Hindu Business Line : Gold to test resistance and fall

Comex gold futures ended higher for the week, as a rebound in energy costs and the dollar’s drop against the euro revived demand for an inflation hedge.

The dollar headed for a second straight monthly gain against the euro, on signals that the Federal Reserve may raise borrowing costs by the end of the year.

Seven rate cuts in seven months helped send the euro and gold to all-time highs.

A relief rally in the dollar, in the short-term, could put pressure on gold prices, but the long-term fundamentals remains unchanged and positive for gold as an inflationary hedge.

Comex June gold futures fell sharply lower against our expectations.

Failure to surpass recent highs and break of key support levels have changed the picture to bearish for gold. Volatile conditions persist presently. Resistances are at $905/07 levels now followed by $921.

Only a daily close above $921 could revive bullish expectations. We now favour resistance to cap for a test of $845 or even below at $832.

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.

Only a rise above $955 would confirm this view. The 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 a bearish reversal.

Only a crossover above the zero line will now restore confidence for bullishness ahead. Therefore, expect gold to test the resistance levels and fall lower again.

Supports are at $874, 862 & 855. Resistances are at $905, 921 & 955.

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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