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Comex gold futures ended sharply lower on Friday, as the dollar rebounded from an all-time low against the euro, reducing the appeal of the precious metal as an alternative investment. Feeling that financial companies could survive the credit crisis boosted the dollar. This was despite crude oil reaching new highs. Flight of capital from safe-haven assets into risky assets like the dollar pressured gold prices lower. Producer de-hedging and supply-side worries could underp in gold futures overall. However, immediately flight of money into the dollar could weigh heavily on prices.

Comex April gold futures fell sharply lower after failing to follow-through higher. Prices are now expected to edge lower towards recent lows again based on price structure. Resistances are at $925 followed by $938 now. Direct rise above $943 could revive hopes of bullishness again. Supports are now at $905 followed by $892. Break below $892 could either see a sideways move or a corrective fall once again towards recent lows. There are some indications in the big picture now for a large downward correction as long as $945 levels cap upside attempts.

We believe that the third wave could have ended at $732 and the fourth wave is in progress right now. We could now still be tracking a wave four A-B-C in progress — once the correction ends. There are now signs that the fifth wave could have ended. A possible A-B-C correction lower is in the offing.

The RSI is in the neutral zone, indicating a negative divergence, a sign of possible intermediate top — one of the reasons for our expectations of a large downward correction. The averages in MACD are still above the zero line of the indicator suggesting bullishness to be intact. Only a crossover below the zero line will indicate bearishness. Therefore, expect gold futures to consolidate and test the resistance levels.

Supports are at $892, 877 & 850. Resistances are at $925, 936 & 945.

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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