Comex gold futures steadied on Thursday as the dollar retreated slightly from an almost 14-year high. The futures moved as expected. As mentioned in the previous update, a potential target on the downside lies at $1,195-98 per ounce levels and there is also scope for prices to extend lower towards $1,171 levels, if they fail to hold support at $1,195-97 levels.

Failure to hold support at $1,197-98 has turned it into a strong resistance level going forward. Resistances are at $1,195-1,200 now, and while resistances cap, we can expect a decline to $1,170-75 in the coming sessions.

We favour strong supports to kick in there, failing which more weakness can be anticipated subsequently. Only a daily close above $1,235 in good volumes could again revive bullish hopes and such a rise will hint that the downward correction has ended and the rally higher above $1,400 levels has begun.

In a broader picture, we expect the downside from here to be limited and a recovery to begin after testing important levels mentioned above. But, it could potentially take a while for a sustained recovery to materialise.

Wave counts: It is most likely that the fall from record $1,925 to the recent low of $1,088 so far, was either a possible corrective wave ‘A’, with a possibility to even extend towards $1,025-30 levels or a complete correction of A-B-C ending with this decline. Subsequently, a corrective wave ‘B’ could unfold with targets near $1,375 or even higher. After that, a wave ‘C’ could begin lower again.

Alternatively, we can also expect wave ‘B’ to extend to $1,476 levels. If the current decline as a whole from $1,920 can be considered as a fourth wave, then the fifth wave could begin and cross $1,700 in the long-term.

As prices have broken important resistances and shown impulsive tendencies, we will stick with the above count. As mentioned earlier, once prices reach $1,025-45 levels we will look for signs of a reversal.

There are signs of a turnaround, and prices have convincingly risen in volumes and closed above $1,300 levels, which further reaffirms our wave count.

RSI is in the oversold zone now, indicating that an upward correction is in the offing. The averages in MACD are still below the zero line of the indicator, indicating a bearish reversal. Only a crossover again above zero could hint at a reversal to bullishness.

So, sell on rallies to $1,195-1,200 with a stop-loss at $1,216 targeting $1,165-70. Supports are at $1,170, 1,127 and 1,090. Resistances are at $1,200, 1,225 and 1,255.

The writer is the Director of Commtrendz Research. There is risk of loss in trading.

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