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Gold futures, which touched $1,033 an ounce for the first time in March, have plunged, and on Friday tumbled below $800 for the first time since late last year. In the dramatic sell-off, gold has slashed more than $100 off its prices since August 1.

It comes amid a host of factors that have dented the metal’s safe-haven appeal.

The once-limping dollar is strengthening, crude oil is easing from record levels, and signs suggest the worst may be over for the US economy. However, we believe that this is Euro weakness and not dollar strength and still we are not convinced that the US dollar can stage a meaningful rebound. Gold should be holding up. Inflation world-wide remains a threat, and the continuing credit crunch and spreading economic worries should make gold an attractive safe-haven bet.

Comex December gold futures headed lower perfectly in line with our expectations.

As mentioned earlier, a fall below $845 could lead prices towards the important long-term trendline support point at $795.

Further downside looks likely now and the markets could have an inclination to test the very important support at $750-755 zone, being a trendline support point as seen in the chart above. Important resistance is now at $810-15 and any signs of a pullback can only be considered relevant, if it closes above this level. Such a pullback has the potential to test $824 or even higher towards $836 or in an extreme case up to $848.

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 extremely 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 would signal a bullish reversal again.

Therefore, expect gold to test support levels and rise higher subsequently.

Supports are at $780, 763 & 755. Resistances are at $810, 835 & 848.

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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