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Gold futures, ended higher on Friday extending gains to a second week as demand for gold soars as people continue to seek out safe havens. It has also been accompanied by extreme volatility. Investments in exchange traded funds have risen sharply following the bankruptcy of investment bank Lehman Brothers Holdings Inc and the US takeover of insurer American International Group Inc. The $700-billion bailout package, aimed at calming markets, has still not fructified adding to uncertainty resulting in a gold rush as a safe haven.

Comex December gold futures swung wildly in extreme volatile conditions which is becoming quite common in the futures markets. As mentioned in the previous update, a period of consolidation is required now to cool nerves and build for a rise above $957 a trend line resistance point. Important supports are at $845 followed by $823 now.

Favoured view expects prices to consolidate between $865 and $923 levels for sometime before rising towards $967 or even higher towards $1,000. Unexpected fall below $820 could cause doubts on this bullish view. 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 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 have gone below the zero line of the indicator, suggesting a bearish reversal. Only a cross-over above the zero line of the indicator to signal a bullish reversal again. Therefore, expect gold consolidate and rise higher subsequently.

Supports are at $865, 845 & 823. Resistances are at $895, 923 & 957.

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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