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Comex gold futures ended lower on Wednesday as the dollar rose to a nine-month high against a basket of currencies. The metal slid 6 per cent in September, its sharpest monthly drop since June 2013.
Reflecting waning investor sentiment, holdings in SPDR Gold Trust, the top gold-backed exchange-traded fund, fell 2.39 tonnes on Tuesday to 769.86 tonnes, the lowest since December 2008.
Markets are also watching the political unrest in Hong Kong for impact on equities and possible haven bids on gold. Comex gold futures are lower in line with our expectations.
As mentioned in the previous update, prices could be eventually breaking lower and heading towards recent lows at $1,180 an ounce levels. Prices are expected to gradually inch towards $1,185-95 levels, a crucial trend line resistance support point.
A close below $1,175 should open the downside further for an even sharper move lower towards $1,050 levels in the bigger picture.
However, it looks unlikely for a sharp fall immediately. Prices could see a pullback to $1,225-35 levels before eventually dropping.
Only a close above $1,237 could dent the bearish view. Such a rise could take prices towards $1,260, or to $1,275. The favoured view is that prices will get capped in the $1,235-40 range and decline again towards levels mentioned above.
The wave counts have to be revisited again. A fall below $1,250 has forced us to abandon any bullish hopes and look at a bearish one targeting $1,050.
The current set of moves from $1,175 to $1,435 is a corrective wave four in an impulse which began from the high of $1920, with an equality target at $1,020. Ideally, from this a pullback towards $1,300 looks likely.
RSI is in the oversold zone now indicating a possible upward correction or a retracement in the offing. The averages in MACD are still 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 $1,230-35 zone with a stop loss at $1,245 targeting $1,175.
Supports are at $1,200, 1,175 and 1,145 and Resistances are at $1,225, 1,237 and 1,265.
The author is the Director of Commtrendz Research and there is risk of loss in trading.
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