Gold to test resistance, fall

Comex gold futures ended lower on Friday and posted its sharpest weekly drop in more than two months as strong US economic data raised uncertainty over the timing of a slowdown in stimulus measures.

On Wednesday, gold tumbled 2.5 per cent after minutes of the Federal Reserve's October meeting showed US central bankers could start scaling back monetary stimulus at one of their next few meetings.

Disappointing physical demand from Asia and continued outflow in gold exchange-traded fund also pressured bullion prices. Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 3.6 tonnes to their lowest since early 2009 at 856.71 tonnes on Thursday. Outflows have totalled 450 tonnes this year.

Comex gold futures declined in line with our expectations.

As mentioned in the previous update, prices could decline to $1,250 while resistances cap. A minor recovery is seen towards $1,265/75 levels in the coming week, while supports can be seen at $1,230-32 levels. Unexpected fall below $1,230 might lessen the chances for this recovery and drag it further down towards $1,210/1,205, as the trend remains weak. Only a cross over past $1,275 might hint at the possibility of strengthening further towards $1,310/20 levels, which we do not favour. The big picture remains weak and potential targets are near $1,150-75 levels with chances of declining even further to $1,090-95 or even lower to $1,035-40, where several technical supports will emerge, also called as a confluence point. Such declines could be a potential long-term investment opportunity, considering the long-term trend which still looks healthy for gold.

The wave counts need to be reviewed once again. A failed fifth wave move at $1,800 resulted in a corrective decline to $1181 in the form of wave “A”.

A possible wave “B” is in progress with targets near $1,420 or even higher to $1,485. This means a wave “C” is expected to follow through which could target $1,150 or even lower.

Alternatively, from the peak of $1,920 a corrective decline in the form of “A-B-C” is already over at $1,181 and a new impulse has begun. Confirmation of such an impulse will be seen at $1,535. With the present move failing near $1,435-40, we will go with wave “B” ending at $1,433 and a possible Wave “C” underway with targets near $1,145-50 or even lower to $1,045. RSI is in the neutral zone now indicating that it is neither oversold nor overbought. The averages in MACD are below the zero line of the indicator hinting at bearishness to be intact. Only a cross-over above the zero line could hint at bullishness again.

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

Supports are at $1,231, 1,205 and 1,155. Resistances are at $1,265, 1,310 and 1,355.

(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.t@gmail.com.)

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