The Hindu Business Line : Gold may test support levels

Comex gold futures ended lower, mostly due to a sharp fall in crude oil prices. The skid came as the Federal Reserve Chairman, Mr Ben Bernanke, told Congress that the US economy was in for a tough 2008, with unpredictable inflation and no clear date for recovery.

The dollar was little changed against the euro on Friday as the US stock markets and oil prices began to calm down, following a week of turbulence. But uncertainty over the US financial system and fears of military confrontation between Iran and Israel, that had sent oil to record highs, would still support gold. However, the Fed chairman’s testimony this week also undermines the fact that a weakening economy is not conducive for commodity growth.

Comex August gold futures tested the resistance levels but could not follow-through higher, resulting in a sell-off once again. Dips should now find supports at $945-50, and as long as $933-35 remains intact, there is still a good possibility of a test of the four-figure-mark. However, failure to hold support at $945 could drag prices lower back to $913-15 levels now.

We believe that the third wave could have ended at $1,033 and the fourth wave that we have been tracking could have ended. We could now be in a potential fifth-wave impulse. A close above $995 would confirm this view. However, an unexpected fall below $915 could cast doubts about this wave count. The RSI is in the neutral zone, indicating that it is neither overbought nor oversold. The averages in MACD have gone above the zero line of the indicator, suggesting a bullishness to be intact. Only a crossover below the zero line of the indicator would signal a bearish reversal. Therefore, expect gold to test support levels.

Supports are at $945, 935 & 915. Resistances are at $978, 995 & 1033.

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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