Comex gold futures ended higher on Thursday, on short-covering and rallied over 1.5 per cent on Friday, its biggest one-day gain since November, as disappointing US job data fuelled expectations that the Federal Reserve will continue its bullion-friendly bond purchases.

The weak jobs data reduced the chance that the Fed would alter its current $85 billion monthly purchases of mortgage-backed securities and Treasuries known as qualitative easing in a bid to boost economic growth.

Gold’s response to the payrolls report was particularly strong because previous advances in the labour market had fuelled discussion within the US central bank about whether to cut back the third round of bond purchases, perhaps as soon as this summer.

However, investor interest continued to recede on Thursday, with bullion holdings in major gold exchange traded funds dropping to their lowest this year.

Comex gold futures moved lower against our expectations.

As mentioned in the previous update, fall below $1,580 could hint at weakness.

Decline below $1,574 revived bearish expectations of a test of $1,525 or even lower. We continue to maintain that in the bigger and long-term picture prices are still in a broad consolidation after reaching all-time highs at $1,920.

There is still a very good chance of a test of $2,200-2,300 in 2013 while $1,520-25 remains undisturbed on the downside. In the coming week, we expect prices to find good resistance in the $1,593-95 range followed by $1,615-20 levels.

While $1,555-50 holds support, a move higher to the above mentioned levels look likely.

Despite this recent sharp pullback, the sentiment remains muted.

Once above $1,615-20, prices could aim for further higher levels from there.

But, this zone still remains very critical to aid us in changing our near-term bearish view.

The wave counts are gradually hinting that a new impulse is in the offing. A possible corrective wave “C” has possibly ended at $1,523.

As mentioned earlier update a corrective move in the form of wave A-B-C could have ended at $1,523.

A new impulse has begun with a potential to test $2,025-30 levels in the form of a fifth wave move. A perfect confirmation of the same will be seen on a close above $1,785.

However, a move below $1,690 has increased the possibility that the broad corrective consolidation in form of an “A-B-C-D-E” is in progress now. RSI is in the neutral zone now indicating that it is neither overbought nor oversold.

The averages in MACD are still below the zero line of the indicator hinting at bearishness to be intact.

Therefore, look for gold futures to test the resistance levels and then decline lower again.

Supports are at $1,555, $1,525 & $1,500 and resistances are at $1,595, $1,620 & $1,645.

(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.t@gmail.com.)

(This article was published on April 7, 2013)
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