The Hindu Business Line : Gold may test resistance levels

Gold futures, shot up on Friday as the dollar weakened, oil prices gained. The demand/ supply scenario favours higher gold prices. According to the World Gold Council, declining production due to power problems and higher cost of production and a robust demand growth make the yellow metal extremely attractive during this troubled times when other asset classes under perform and does not look good going forward. Beyond short term weakness, due to economic woes, upside potential still exists for prices longer term, as supply problems are likely to persist and investment demand could remain the key factor for prices.

Comex December gold futures moved perfectly in line with our expectations. As mentioned in the previous update, the short-term picture was turning bullish for gold, and favoured a break above $778-80 and stretch towards $788-90 levels. Prices even went above $800 briefly. Prices could now gradually stretch towards $835-845 levels. Good support will be seen at $778-80 now. Fall below $745 could postpone the bullishness and an unexpected fall below $724 could dent our bullish hopes.

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 $780, 764 & 745. Resistances are at $805, 823 & 834.

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.)