Comex gold futures ended higher on Friday, on lingering worries in the Euro Zone, amid losses in the equity markets after Fitch downgraded the credit ratings of Spain and Italy. The safe-haven buying that spurred the metal's three-year rally was absent when the ratings downgrade was announced.

Markets are hopeful that Federal Reserve may introduce new measures to stimulate US economic growth, which would underpin gold as a store of value. Strong physical buying by top consumers – India and China – followed the price correction, which also helped lift prices for the week. Downside risk could re-appear if investors need to sell gold to cover margin calls for losses in other financial markets.

Comex gold futures moved in a broad range. Prices are finding difficult to cross near-term resistances at $1,675-85 levels. A consolidation is seen now in the $1,600-85 range. Favoured expects a fall lower in the coming sessions. The decline could go as low as $1,500 being a trend line support point or even lower towards $1,455 being a Fibonacci retracement point. Therefore, though we expect a pullback towards $1,675-85 levels again, a subsequent decline towards $1,495-1500 is favoured. Only an unexpected rise above $1,690 could change the picture to neutral from bearish.

The wave counts have to be revisited again as a possible fifth has ended. Potential targets for the fifth wave have already been met. Prices have gone above $1,900 as an extension of the fifth wave. Fall below $1,600 confirmed that a corrective “A-B-C” has started. RSI is still in the neutral zone now indicating that it is neither overbought nor oversold.

As mentioned earlier, negative divergence here warns of a strong decline ahead. The averages in MACD have gone below the zero line of the indicator hinting at weakness ahead. Only a cross-over above the zero line in the indicator again will signal the resumption of bullish trend.

Therefore, look for gold futures to consolidate and then rise again.

Supports are at $1,625, $1585 and $1,500. Resistances are at $1,675, $1,700 and $1,730.

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 October 9, 2011)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.