Comex gold ended lower on Friday, hurt by a drop in oil prices, gains in the dollar, and Greece's approval of an austerity package, which cut the metal's appeal as a haven . Precious metal came under pressure as the dollar index rebounded and US crude futures fell more than $2 a barrel on Friday after disappointing economic data from China, where factory output in June grew at the slowest pace in 28 months. Gold is also entering a traditionally low physical demand season which could further dampen appetite. Gold's inability to rise despite a weakening dollar hints at weakness ahead.

Comex gold futures fell lower sharply in line with our expectations. As mentioned earlier, rallies to resistances in the $1,510-15 levels capped gains for a decline lower. Close below $1,510 has revived hopes of a decline towards $1,435-45 levels again also being a rising trend line support point. Ideally, this level could hold any major attempts to decline being a medium-term support point. Near-term support is also at $1,460-65 levels. Rallies to resistances at $1,500 followed by $1,510 could now cap upside attempts. Favoured view now expects resistances to get capped for a decline to $1,435-45. Failure to hold support here has the possibility of taking prices even lower to $1,400-05 levels.

The wave counts we have been tracking, expecting a final fifth wave, have been negated. The wave counts are hinting at a much bigger downside in the offing. Subsequent to the failed fifth wave, we could now be in the beginning of wave “A” possibly targeting $1,445 or even lower to $1,405. RSI is the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD have gone below the zero line of the indicator, indicating the beginning of a bearish trend. Only a cross-over above the zero line in the indicator will now hint at revival of bullish trend.

Therefore, look for gold futures to test the support levels.

Supports are at $1,465, $1,435 and $1,405. Resistances are at $1,498, $1,515 and $1,535.

Gnanasekaar 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.)

(This article was published on July 3, 2011)
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