Comex gold futures were sharply lower on Thursday as the dollar strengthened against a basket of currencies. Market fears of an earlier-than-expected hike in interest rates by Federal Reserve continues to grow higher ahead of the Federal Open Market Committee meet next week.

Demand for gold as hedge against geo-political risk was also curbed after Ukraine’s President said that Russia had removed bulk of its forces from his country, raising hopes of peace. Physical demand is expected to pick up ahead of Diwali which could support prices at lower levels. Comex gold futures have fallen in line with our expectations.

As mentioned in the previous update, we expected prices to test resistances in the $1,280 range and then decline. A fall below the $1,263-65 zone has opened the downside for gold futures now towards $1,240-45 levels initially, where it can find some support in the near-term.

Prices have tested the crucial near-term support at $1,240. Though possibility of a support looks likely from here, we think prices could eventually break lower and head towards recent lows at $1,180 levels. Resistances will now be seen at $1,260-65 followed by $1,275-80 levels. Only a close above $1,297 could cause doubts on our bearish view. Such a rise could take prices higher towards $1,310-15 again, which we do not favour now. Favoured view still expects prices to get capped in the $1,260-70 range and decline again.

We will now go with the alternative wave counts that we have considered broadly in our earlier updates.

From the peak of $1,920 a corrective decline in the form of “A-B-C” is already over at $1,181 and a new impulse has begun. Confirmation of such an impulse will be seen above $1,445. Fall below $1,250 could now force us to abandon this scenario and look at a bearish one targeting $1,050.

RSI is in the oversold zone now indicating a possible upward correction in the offing. The averages in MACD are below the zero line of the indicator indicating a bearish reversal.

Only a cross over again above the zero line could hint at a possible bullish reversal again. Therefore, look to sell gold on rallies to $1,260-65 zone with a stop loss at $1,280 targeting $1,225 and 1,200.

Supports are at $1,225, 1,200 and 1,175 and Resistances are at $1,260, 1,285 and 1,297.

The writer is the Director of Commtrendz Research. There is risk of loss in trading.

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