Comex gold futures ended marginally higher on Friday on German Chancellor Angela Merkel’s support for more action by the European Central Bank to fight the bloc’s debt crisis.

Investors have been waiting for bolder moves by the ECB, after President Mario Draghi said last month the bank would do everything in its power to hold the euro zone together, although a subsequent ECB meeting yielded few concrete measures.

Though physical and investment demand slumped led by top consumer India and China, central banks have been quite active during this period diversifying reserves, an unusual phenomenon during this period, considering prices have not declined much for bottom hunting opportunities.

A sizeable increase in central bank gold purchases in the second quarter was reported by the World Gold Council on Thursday further reaffirming the sentiment.

Comex gold futures are still moving in a broad range.

As mentioned in the previous update, a sideways consolidation is still under way with key supports in the $1,585-1,590 zone followed by critical support at $1,545. While these two supports hold, we still hold on to our bullish view of a break above $1,645 opening the way up once again.

Only a daily close above $1,645 has the potential to test the critical trend line resistance at $1,695-1,700 levels on the upside or even higher to $1,785-1,800 levels.

Immediate supports are at $1,600-1,605 levels followed by $1,575-1,580 now.

We still favour an upside breakout while prices stay above support levels. Only an unexpected daily close below $1,560 could lead to a decline towards $1,525 or even lower.

The wave counts have to be revisited again as a possible fifth has ended. Potential targets for the fifth wave have already been met.

Prices have gone above $1,900 as an extension of the fifth wave.

Fall below $1,600 confirmed that a corrective “A-B-C” has started. It is possible that Wave “A” ended at $1,535 and a wave “B” ended at $1,804.

A possible wave “C” has possibly ended at $1,523. With the current price move going to $1,627, we feel a broad corrective rally is still under way.

We will review the counts once we see an impulse move breaking the upside at $1,795.

The Relative Strength Index is in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD are above the zero line of the indicator hinting at a bullish reversal once again.

Therefore, look for gold futures to consolidate and rise.

Supports are at $1.605, $1,585 and $1,545 and Resistances are at $1,625, $1,645 and $1,700.

Gnanasekaar T.

(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.)

(This article was published in the Business Line print edition dated August 20, 2012)
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