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Comex gold futures ended marginally higher on short-covering on Friday, as buyers covered short positions before the weekend and pulled prices up from lower levels.

Investors awaited the outcome of this weekend’s meeting of G8 Finance Ministers. Any comment on inflation at the meeting may fuel expectations for a US rate hike, which could strengthen the dollar, pressuring gold. Nonetheless, with the dollar r emaining broadly weak, the outlook for interest rates uncertain, and inflation on the rise, markets remain broadly positive towards the long-term outlook for gold.

Comex August gold futures fell lower against our expectations. As cautioned, in the previous update, fall below $880 forced us to abandon our bullish bias. Moreover, a head-and-shoulder pattern has formed and its neckline broken. This could lead to a sharp decline towards $795 or even lower in the coming sessions. Rallies to $800 and $895 are now expected to cap the upside.

Our favoured view is to expect a fall below $855 to trigger the decline as long as $908-909 caps upside attempts. 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 subsequently.

Supports are at $863, 851 & 832. Resistances are at $880, 895 & 907.

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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