Comex gold futures ended higher on Friday on the recent central bank moves which will further lift sentiment in precious metals.

Gold has been hovering near the yearly highs after the US Federal Reserve announced a new round of quantitative easing and pledged to keep rates low until mid-2015, boosting appetite for gold, which benefits from a low-interest rate environment.

Rekindled interest in precious metals has lifted holdings of physically backed exchange-traded gold and silver funds to the highest in about a year.

SPDR Gold Trust, the world’s largest gold ETF, said its holdings had hit 1,308.41 tonnes, the loftiest since last August.

Gold will remain attractive to investors seeking to hedge against future inflation, or looking for alternative investment in a low interest rate environment.

Comex gold futures are moving in line with our expectations.

As mentioned in the previous update, 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.

Overbought conditions still warn us of a downward correction in the coming sessions.

Such decline could find support in the $1,765 levels initially followed by $1,745-1,735 levels. Subsequent to the correction, the upward rally could resume higher towards $1,795-1,805 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.

The relative strength index is in the 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 support levels and then bounce higher again.

Supports are at $1,765, $1,745 and $1,720 and resistances are at $1,785, $1,805 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 23, 2012)
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