The Hindu Business Line : Gold: Signs of bullish turnaround

Gold futures ended sharply lower on Friday on expectations that the global economy may be heading into a period of deflation, curbing a demand for gold as an inflation hedge.

Bullion is down 12 per cent this year, well below the record high of $1,030.80 an ounce struck in March. A sharp drop of the Comex futures open interest last week signalled more unwinding of long positions as extreme price volatility has dented bulli sh sentiment.

Signs of recovery in stock markets and firmer oil spurred a rebound in gold last week but prices could not sustain and gave up most of the gains by the end of the week.

Comex December gold futures tested the resistance levels in line with our expectations.

However, the subsequent fall from there and failure to follow-through higher above $800 is seen as a bearish sign.

Rallies to $745 levels are expected to offer good resistance now for a test of recent lows at $680 or even lower.

Price structures do not favour any major upside in the near-term, while the big picture still shows potential to cross the $1,000-mark in the medium to long-term basis. Investment buying can be considered with a long-term horizon, while buying for trading gains is not advisable in a down trend.

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 now.

Supports are at $705, 685 & 655. Resistances are at $745, 756 & 775.

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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