Gold may test resistance, fall

Comex gold futures ended lower on Friday after the resignation of the Egyptian President, Mr Hosni Mubarak, following weeks of protest took some heat out of risk aversion.

Once the geo-political risk was out of the way, gold came in for some profit-taking. However, despite the decline, bullion posted its second consecutive weekly gain as fears that Egypt's unrest would spread across the Arab world had put a floor on gold prices.

Gold weakened further after data showed stronger-than-expected US consumer sentiment, which rose to an eight-month high in early February. On the back of a recovery in the US economy and possible dollar recovery gold is unlikely to find follow-through buying.

Comex gold futures are moving perfectly in line with our expectations. As mentioned in the previous update, prices could aim for the next resistance in the $1,365-1,375 levels.

We still expect prices to decline below $1,300. The bearish picture for gold futures still looks intact and the move to $1,365 levels was a pullback only in the overall bearish trend.

Only an unexpected rise above $1,393 would cause doubts on our bearish view. Such a rise could aim for $1,474-1,485 levels.

For the coming sessions, we expect prices to decline while $1,375 caps upside attempts. Fall below $1,344 will hint at resumption of bearish trend.

We will once again revisit the wave counts, as the markets witnessed lot of volatility.

We see the recent high of $1,435 as the end of the fifth wave impulse only and now a new corrective wave “A-B-C” in the making.

We believe wave “A” has possibly ended at $1,307. A corrective pullback in the form of a wave “B” is in the making. Only a daily close above $1,395, will hint that a new impulse or an irregular wave “B” could be in the making.

The RSI is still in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still below the zero line of the indicator signalling bearishness to be intact.

Therefore, look for gold futures to test the resistance levels and then fall lower subsequently.

Supports are at $1,351, $1,344 and $1,300. Resistances are at $1,365, $1,375 and $1,385.

(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.)