The Hindu Business Line : Bullishness intact in gold

Gold futures ended higher on Friday led by a half-percentage point cut by the Federal Reserve a day after global credit fears led to a broad-based sell-off in the commodities sector and other financial markets. The US Federal Reserve on Friday cut the discount rate governing direct Fed loans to banks by a half-percentage point in a surprise move aimed at keeping credit flowing and calming jittery global markets. The Fed’s move to cut the discount rates clearly puts p ressure on the dollar and rekindles inflationary fears, both positive factors for gold going forward.

Comex December gold futures tanked lower in line with our expectations. As mentioned in the previous update, as long as the $688-93 zone caps the upside, a fall below $665 looked likely. Resistance will be seen in the $678-80 zone now. However, the bearish indications in the bigger picture remain intact. Only a move above $687 will hint at our bearish expectations going wrong. Near-term support is at $665 levels and a fall below could signal a bearish undertone with the potential to test $635 or even lower. A bearish head-and-shoulder pattern is also in the making as there are better chances of a fall lower now.

Our favoured view now expects resistance in the $680 zone to cap for a fall lower again. We believe that the third wave could have ended at $732 and the current move being a fourth wave consolidation and the beginning of a fifth wave impulse will be confirmed above $698. RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD are still above the zero line of the indicator suggesting bullishness to be intact. Only a cross-over below the zero line will be a clear bearish sign. Therefore, expect gold futures to test the resistance levels and correct lower.

Supports are at $665, 658 and 645. Resistances are at $680, 687 and 698.

Gnanasekar T.

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