Gold to test futures, rise

Comex gold futures rebounded higher on Friday, after the dollar weakened against the euro and as investors sought the precious metal's safety after Japan's earthquake and with Middle East violence rising heading into the weekend. Crude oil headed for the first weekly drop in a month after an earthquake shut refineries in Japan, the world's third- largest user. The euro rose 1 per cent against the dollar after leaders reached a deal on debt and deficit limits for euro zone countries. However, gold booked its deepest weekly loss since mid-January, falling earlier in the week with oil, as some players unwound positions taken out as an inflation hedge when oil prices advanced to highs last seen in 2008. More inflationary pressure is needed for gold prices rise higher.

Comex gold futures are struggling to retain the bullishness. As mentioned in the previous update, indicators confirm a bullish reversal trend in gold and a possibility of making new highs now. A consolidation could be seen now between $1,400-1,435 levels before a break higher which could target $1,465-75 levels. We still believe the up trend to continue. Rise and close above $1,431 could open the upside again. Only an unexpected fall below $1,390 could result in a corrective decline targeting $1,365 levels initially. Supports are now seen at $1,410 followed by $1,390 levels. Only an unexpected decline below $1,354 could revive bearish hopes again for $1,300 or even lower to $1,250.

We have to revisit the counts once again. This typically happens when markets are either nearing a peak or in a messy correction. As mentioned earlier, a daily close above $1,395, will hint that a new impulse or an irregular wave “B” could be in the making. Our preference is now towards a beginning a fifth wave targeting $1,495 rather than that of an irregular wave “B” as prices crossed $1,385. We now see the recent high of $1,435 as the end of a third wave impulse only and a decline to $1,309 as an end of a minor corrective A-B-C decline. RSI is still in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD have crossed above the zero line of the indicator signalling a bullish reversal.

Therefore, look for gold futures to test the supports and then rise higher subsequently. Supports are at $1,410, $1,395 and $1,365. Resistances are at $1,435, $1,455 and $1,495.

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 .)

COMMENT NOW