Comex gold futures ended sharply lower on Friday in a free fall, with weeks of volatility, renewed strength in the dollar and fund liquidation denting its safe-haven status. Adding to the negative sentiment, the CME group raised margins for precious metals further squeezing the optimistic investors in gold, who were trying to hold onto long positions and deterring ones who tried to bargain-hunt as well.

Gold, which, was so far being bought as a safe-haven became the source of liquidity for margin calls in other asset classes like equities.

However, once the panic recedes and risk appetite picks up precious metals could bounce quite sharply in the coming weeks.

Comex gold futures moved as per expectations.

As mentioned in the previous update, ideally, prices could go below $1,765 after failing to go past $1,835-1,845 levels. Only a rise above $1,890 could dent our bearish expectations.

Further downside looks likely towards $1,565-1,575 levels from where a bounce higher can be expected. Strong resistance will be noted in the $1,700-1,720 range.

Failure to hold support here could drag prices lower towards $1,500 being a trend line support point or even lower towards $1,455 being a Fibonacci retracement point.

While $1,700-1,725 levels cap upside attempts a decline towards $1,575 or even lower can be seen in the coming week.

The wave counts have to be revisited again as a possible fifth could be in the making again. Potential targets for the fifth wave have already been met.

Prices have gone above $1,900 as an extension of the fifth wave.

As of now we feel the fifth wave move has ended. However, a confirmation can be seen only below $1,600.

Till then we stick to the continuance of the fifth wave. The RSI is still in the neutral zone now indicating that it is neither overbought nor oversold. Negative divergence here warns of a strong decline ahead.

The averages in MACD are still above the zero line of the indicator hinting at bullishness to be intact. 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 fall lower again. Supports are at $1,800, $1765 and $1,700. Resistances are at $1,835, $1,848 and $1,895.

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.)

(This article was published on September 25, 2011)
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