Gold to test support levels, rise

Comex gold futures ended marginally higher on Friday, tracking equity markets on persistent euro zone

debt worries and margin liquidation from other markets. The metal rose in tandem with equities as

lower European sovereign debt yields eased investors' fears.

News that euro zone and IMF officials

had discussed collaborating to provide sufficient resources to tackle the region's debt crisis also

helped.

Gold is in the 11th year of a bull market and futures reached a record $1,923.70 an ounce on September 6 as investors sought alternatives to slumping equities and some depreciating currencies.

Bullion investor sentiment also improved after a Thursday report by the industry-funded World Gold Council showed central bank buying reached nearly 150 tonnes confirming that economies are diversifying into gold as a part of their reserves.

Comex gold futures moved lower against our expectations.

As mentioned in the previous update, a fall below $1,740, being a rising trend line resistance point could drag prices lower again. Such a fall could take prices lower towards $1,700-1,710 levels from where support can be seen again.

Strong support is seen in the $1,690-1,695 zone.

While prices stay above this level, we can expect a gradual rise back towards $1,745 or even higher to $1,778 in the coming sessions.

Unexpected fall below $1,690 has the potential to decline lower towards recent lows at $1,500 or even lower.

As mentioned in the earlier update, we presently view the current up move to $1,800 being a corrective one within a larger decline and only a close above $1,825 could change the bigger picture view to bullish again.

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. It is possible that Wave “A” ended at $1,535 and a wave “B” ended at $1,804.

Fall below $1,675 could hint at a beginning of the wave “C” $1,400 levels. The RSI is still in the neutral zone now indicating that it is neither overbought nor oversold.

The averages in MACD are above the zero line of the indicator hinting at a possible bullish reversal and a resumption of bullish trend.

However, a cross-over below the zero line could be a bearish sign.

Therefore, look for gold futures to test the support levels and rise higher again.

Supports are at $1,710, $1,695 and $1,644. Resistances are at $1,745, $1,778 and $1,805.

(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. )

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