The Hindu Business Line : Positive divergences in gold

Gold futures, rebounded on Friday as retail sales in the US dropped in October by the most ever, pushing the economy toward the worst slump in decades and potentially boosting bullion’s appeal as a haven. The weekend G20 meeting has not evoked any major response from markets participants as there were 20 different countries involved with varied views and responses.

The bounce back was also technically motivated ahead of the weekend. However, weakness in demand for commodities and deflation risks could keep the pressure on gold in the short-term, but, the threats for inflation in the long-term still persists.

Comex December gold futures moved in line with our expectations. Prices went below $700, but bounced back quite sharply adding to bullish hopes. The short-term picture is turning mildly bullish for gold. Immediate resistance is at $761 followed by $778-80 levels now. We favour a break above $778-80 and stretch towards $788-90 levels now and find resistance there. However, fall below $724 could cause doubts about this bullish view and the consolidation in the choppy zone would continue. 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 are 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 resistance levels.

Supports are at $761, 778 & 790.

Resistances are at $735, 724 & 708.

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.)