Comex gold likely to fall

Comex gold futures ended lower on Friday, but rebounded sharply off a 4-1/2 month low after the US data showed job market growth has slowed, suggesting the Federal Reserve may retain its monetary stimulus in the near term.

Gold has been particularly sensitive to any indications that the Fed could withdraw its stimulus soon. The US central bank has linked the continuation of its loose monetary policy to evidence of a sustained upturn in the jobs market. Among gold-backed exchange-traded funds, the No. 1 SPDR Gold Trust reported an outflow of 9.638 tonnes as of Jan. 3, the biggest one-day decline in its holdings since Sept. 26.

Funds cut their bullish bets on gold and silver futures and options to the lowest levels since mid-August as of the last trading day of 2012, the CFTC says.

Comex gold futures are stuck in a narrow range. As expected, prices extended towards $1,685-90, where it found strong resistance and declined . Crucial support is at $1625 and failure to hold support here could further take it lower towards $1,565-75 levels. Our favoured view expects prices to find a possible intermediate bottom near $1,550-65 range in the coming weeks.

In the bigger picture prices are still in a broad consolidation after reaching all-time highs at $1,920. There is still a chance of prices testing $2,200-2,300 in 2013 while $1,520-25 remains undisturbed on the downside. In the coming week, we expect prices to bounce back higher towards $1,675-85 levels initially while $1,625 holds. Direct fall below $1,625 could drag price lower to $1,550-65 range.

The wave counts are gradually hinting that a new impulse is in the offing. A possible corrective wave “C” has possibly ended at $1,523. As mentioned earlier update a corrective move in the form of wave A-B-C could have ended at $1,523. A new impulse has begun with a potential to test $2,025-30 levels in the form of a fifth wave move.

A perfect confirmation of the same will be seen on a close above $1,785. However, a move below $1,690 has increased the possibility that the broad corrective consolidation in form of an “A-B-C-D-E” is in progress now. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are below the zero line of the indicator hinting at bearishness.

Therefore, look for gold futures to test resistances initially and then decline again.

Supports are at $1,625, $1,600 and 1,565 and Resistances are at $1,665, $1,685 and $1,700.

(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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