Gold to test support

Comex gold futures ended lower on Friday, on track for their biggest weekly drop since the start of the month, with an uncertainty about crucial US talks to avert a fiscal crisis continuing to dent sentiment. Top Republican lawmaker John Boehner said on Thursday that the talks had made little progress, after expressing optimism about reaching a deal with the White House just a day earlier.

If the parties fail to reach an agreement, $600 billion in tax hikes and spending cuts – dubbed as the “fiscal cliff” – will automatically kick off in early January, threatening to push the world's top economy into recession.

However, if a breakthrough does emerge, gold would likely initially follow any bounce in risky assets and then decouple later.

Comex gold futures went lower against our expectations. Prices came close to our anticipated targets near $1,760-65 levels and then decline from there sharply.

Price structures are turning weak and bearishness gaining momentum again.

An important rising trendline support is at $1,700-02. A daily close below here could warn of a decline to $1,675 followed by $1,625 levels.

While resistance in the $1,725-30 range caps upside attempts, a decline to above mentioned levels look likely in the coming sessions. Only a close above $1,745 could hint at resumption in up trend. Once this resistance is cleared, prices could aim for the important psychological resistance at $1,795-1,800 levels.

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, move below $1,690 could hint that the broad corrective consolidation in form of an “A-B-C-D-E” is in progress.

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

The averages in MACD have gone the zero line of the indicator hinting at a bullish reversal.

Therefore, look for gold futures to test the support levels.

Supports are at $1,702, $1,675 and $1,627 and Resistances are at $1,730, $1,745 and $1,765.

(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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