Comex gold futures ended lower on Friday on profit-taking after a string of mostly positive US data provided a fillip to the dollar, lowering demand for the precious metal as an alternative investment.

Gold hit a one-week high on Friday, extending gains into a second straight session as Spain’s economic reform plan eased investor concerns over euro zone finances, while firmer oil prices also lent support.

Gold also drew support from high oil prices, which are usually associated with rising inflation and tends to add to the appeal of bullion as a hedge against rising prices.

Though high speculative interest in gold in recent weeks and a potential sharp pullback as a result, the medium to long-term outlook for the precious metal still remains rosy.

Comex gold futures are moving in line with our expectations.

As mentioned in the previous update, after a corrective decline to $1,745-35 levels 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.

In the short-term, while $1,765 holds, a move to $1,805-10 levels looks likely in the coming sessions. Fall below $1,735 could result in a sharp correction to $1,700 levels on the downside or even lower to $1,675.

Subsequent to this corrective decline, the upward march could resume and test potential targets above $1,900 levels.

Unexpected decline below $1,670 could postpone the bullishness.

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 $2,025-30 levels.

A confirmation of the same will be seen on a close above $1,785.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold.

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 correct lower initially and then bounce higher again.

Supports are at $1,765, $1,745 and $1,720 and resistances are at $1,785, $1,810 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 30, 2012)
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