Comex gold futures were lower on Thursday after the ECB meeting sprung a surprise by cutting already ultra-low interest rates to prop up a struggling economy. Faced with signs of further deterioration in the euro zone’s prospects, the central bank cut all interest rates by another 10 basis points to new record lows, putting its deposit rate further into negative territory. US non-farm payrolls data due on Friday is expected to give further clues about the world’s largest economy and the timing of the Federal Reserve’s move to raise interest rates. A string of encouraging US economic data, along with a sell-off in the euro and the yen, has boosted the dollar over the past few sessions and raised some speculation that the first rate hike could come earlier than expected. Higher interest rates would hurt the attractiveness of zero yield physical assets such as gold.

Comex gold futures have fallen in line with our expectations. As mentioned in the previous update, we expected prices to test resistances in the $1,305-10 range and then decline. Gold futures have been moving in a choppy range with a bearish bias lately. A fall below the $1,263-65 zone has opened the downside for gold futures now towards $1,240-45 levels initially, where it can find some support in the near-term. We feel prices could eventually break lower and head towards recent lows at $1,180 levels. Resistances will now be seen at $1,280 followed by $1,295-1,300 levels. Only a close above $1,320 could cause doubts on our bearish view. Such a rise could take prices towards $1,337-40 again, which we do not favour currently. Favoured view still expects prices to get capped in the $1,275-85 range and decline.

We will now go with the alternative wave counts that we have considered broadly in our earlier updates. 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 above $1,445. Fall below $1,250 could now force us to abandon this scenario and look at a bearish one targeting $1,050. 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 indicating a bearish reversal. Only a cross over again above the zero line could hint at a possible bullish reversal again.

Therefore, look to sell gold on rallies to $1,285-90 zone with a stop loss at $1,307 targeting $1,245 and 1,200. Supports are at $1,255, 1,240 and 1,180. Resistances are at $1,285, 1,298 and 1,327.

(The author is the Director of Commtrendz Research. There is a risk of loss in trading).

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