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Gold futures, rose higher on short-covering and bargain interest helped by a falling dollar. The bargain-hunting and short-covering that halted massive fund-selling could mark the beginning of a near-term price base in the metal. The dollar fell against the euro on Friday by the largest amount since it began a strong rally two months ago, as a weak US retail-sales report reignited concern that the Federal Reserve may have to cut interest rates again. Also leading the dolla r lower was speculation that the US investment bank Lehman Brothers Holdings Inc. might find a suitor this weekend that would allow it to stay in business.

Comex December gold futures fell sharply lower in line with our expectations. As mentioned in the previous update, a test of recent lows at $778 or even lower towards $750 levels looked likely. Prices went even below on selling momentum.

However, prices have bounced smartly from $739 close to a very important long-term support point at $733. Initial resistance will be seen at $785-87 levels. Test of $808-10 cannot be ruled out as well. Dips to $748-50 levels to provide excellent support now. We believe that the third wave could have ended at $1,033 and the fourth wave that we have been tracking could still be in formation and not ended as expected in the previous update.

Indicators are displaying positive divergences, where prices are making a lower low not confirmed by a lower low in the indicator, a sign of a bullish turnaround. The RSI is in the neutral zone, indicating that it is neither overbought nor oversold. 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 of the indicator to signal a bullish reversal again. Therefore, expect gold to rise higher.

Supports are at $754, 746 & 733. Resistances are at $787, 795 & 810.

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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