The Hindu Business Line : Gold futures may test support levels

Gold futures ended lower Friday on on-going long liquidation due to credit tightness and technical weakness. A stronger dollar and weaker crude oil prices pressured gold futures lower.

Though long-term inflationary concerns persist, short-term weakness exists due to the negative sentiment in the overall commodities complex.

Going forward support could stem from crude oil, as winter demand approaches.

Winter weather could put heating oil back in demand, though economic conditions would need to stabilise first.

Comex December gold futures tanked lower against our expectations.

As anticipated, a daily close below $818 took prices lower towards our potential target at $768/70 being a long-term rising trend line support point. More important support is at $752 another crucial technical point followed by the recent lows at $730. Any rallies to $822-25 could be short-lived. In spite of the short-term weakness, we still view this fall as a corrective move within an overall bullish trend and consider these levels wonderful investment opportunities. 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 still 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 could signal a bullish reversal again.

Therefore, expect gold futures to test the support levels.

Supports are at $770, 752 & 730. Resistances are at $808, 822 & 845.

Gnanasekaar 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.)