Technical Analysis. Sell gold if it rallies to $1,305-10/ounce

Comex gold futures were higher on Thursday due to a softer dollar and equity markets as tensions between Ukraine and Russia escalated once again. However, such previous rallies in gold have been short-lived on prospects of a US interest rate hike.

The dollar was flat against a basket of currencies, mostly due to a recovering euro after speculation of an imminent round of quantitative easing by the European Central Bank cooled.

Pressure is building within the Fed for officials to move as early as next month to more clearly acknowledge improvements in the US economy and lay the groundwork for the central bank’s first interest rate hike in nearly a decade.

Comex gold futures have pulled back higher from recent lows. As mentioned in the previous update, prices could be targeting $1,265/ounce or even lower again. But the $1,270 zone has held well so far. This could result in prices edging higher towards resistances in the $1,305-10 range.

Failure to follow-through higher and continuously failing to push higher above the $1,320-25 zone has led to a broader weakness in gold futures recently. Gold futures have been moving in a choppy range with a mild bearish bias. Only a fall below the $1,263-65 zone and a break below here could open the downside for gold futures again towards $1,240-45 levels or even lower. Since the bigger picture is still weak, we still expect prices to edge lower in the coming sessions. Only a close above $1,327 could dent our bearish view. Such a rise could take prices higher towards $1,137-1,340 again, where it could find resistance again.

Favoured view still expects prices to get capped in the $1,305-10 range and decline again.

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 have gone above the zero line of the indicator hinting at a bullish reversal. Only a cross over again below the zero line could hint at a bearish reversal again.

Therefore, look to sell gold on rallies to $1,305-10 zone with a stop loss at $1,326 targeting $1,275 and 1,260.

Supports are at $1,285, 1,265 and 1,240 and Resistances are at $1,305, 1,323 and 1,345.

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

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