Comex gold ended sharply higher on Friday, on mounting concern that debt woes in the US will escalate, boosting the appeal of the precious metal as a haven. Standard & Poor's became the second rating company to say it may cut the US' top credit grade, and Federal Reserve said it may consider a third round of so-called quantitative easing if the economy falters. Gains in crude oil, a plunge in US consumer confidence and concerns about euro zone debt contagion also helped the metal to its largest two-week gain in over two years. Growth in the bullion holdings of SPDR Gold Trust, the largest gold-backed exchange-traded fund (ETF), has lagged the price gain of the metal. During gold's 10-day rally, the ETF was up less than 20 tonnes only.

Comex gold futures rose higher perfectly in line with our expectations. As mentioned in the previous update, a mild bullish bias has set in again. This was confirmed once above $1,560. As expected we saw a rise above $1,577 and eventually could head towards $1,645 or even higher from there. Supports are at $1,577 followed by $1,560 now. Favoured view now expects supports to hold for a rise towards $,1617-20 initially being a trend line resistance as seen in the chart above. Only an unexpected fall below $1,541 could dash our bullish hopes.

The wave counts have to be revisited again as a possible fifth could be in the making again. Potential targets for the fifth wave are at $1,620 followed by $1,675 now. The corrective downtrend from $1,577 towards $1,478 seems to be a complex corrective pattern. Subsequently, the fifth wave is in progress now. RSI is the overbought zone now indicating a possible downside correction in the offing. The averages in MACD have gone above the zero line of the indicator hinting at a bullish reversal. Only a cross-over below the zero line in the indicator again will signal the resumption of bearish trend.

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

Supports are at $1,577, $1,560 and $1,540. Resistances are at $1,1605, $1,620 and $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_thiagarajan@yahoo.com.)

(This article was published on July 17, 2011)
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