The Hindu Business Line : Gold to test support, rise higher

Comex gold futures ended sharply lower, as the dollar headed for its biggest weekly rise in 3-1/2 years, and it looked set to fall further, as index funds and investors liquidated commodity holdings. The dollar surged against the euro on Friday, its biggest one-day gain in about five years, as evidence mounted that the US economic slowdown is spreading to the euro zone, damping the prospects of interest rate increases.

Comex December gold futures headed lower in line with our expectations. As mentioned earlier, fall below $877 triggered a huge fall. The head and shoulder pattern has again resurfaced after the break of $975 with potential targets at $780-85. In the big picture, there is still a possibility of reversal from $845-50 zone.

Only a fall below $845 will force us to abandon our bullish view in the bigger picture and such a fall could lead prices towards the important long-term trendline support point at $795, also a wave equality target. Any rallies are expected to find resistance at $875 now. 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.

The RSI is in the oversold zone, indicating an upward correction to take place. 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 to test support levels and rise higher subsequently.

Supports are at $850, 845 & 825. Resistances are at $867, 877 & 889.

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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