Comex gold futures ended sharply higher on Friday after the Federal Reserve launched an aggressive economic stimulus programme that could add to the risk of inflation and strengthen bullion’s appeal.

Appetite for riskier assets rose after the Fed announced an open-ended debt buying programme and pledged to keep interest rates near zero until at least mid-2015.

The dollar weakened against a basket of currencies to a four-month low, helping attract gold buyers holding other currencies.

With the prospect of further liquidity flowing into the market and fears of the “fiscal cliff” phenomenon expected to push America into recession is also forcing investors to move towards safe-have bullion.

Comex gold futures have moved absolutely perfectly in line with our expectations.

As mentioned in the previous update, a gradual rise to $1,765-1,775 levels look likely in the coming months.

Break above initial resistance at $1,745-1,750 levels has opened the way for $1,785-1,795 levels or even higher to $1,835-1,845 levels.

Downward correction

Overbought conditions warn us of a downward correction in the coming sessions. Such decline could find support in the $1,745 levels initially followed by $1,720 levels.

Bigger picture looks set for rally to $1,900 levels in the medium-term and in the long-term close to $2,245-2,300.

While these short-term supports hold, the above mentioned upside target at $1,825-1,835 can been tested in the coming sessions.

Only an unexpected daily close below $1,685 could turn the picture neutral 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. A possible wave “C” has possibly ended at $1,523.

A new impulse has begun with a potential to test $2,025-2,030 levels. A confirmation of the same will be seen on a close above $1,785.

RSI

The relative strength index (RSI) is in the highly overbought zone now indicating a possible downside correction in the coming sessions.

The averages in MACD are still above the zero line of the indicator hinting at bullishness to be intact.

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

Supports are at $1,745, $1,720 and $1,685 and Resistances are at $1,785, $1,825 and $1,845.

(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 16, 2012)
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