Comex gold futures ended sharply lower on Friday, heading for its third week of decline after the US dollar firmed, while persistent fears about the health of the global economy also dragged.
Bullion is expected to be volatile before the US Presidential election in early November. A stronger dollar dragged down gold prices and selling picked up after bullion failed to hold to key supports.
Falling crude oil prices also dented sentiment for bullion, as it is considered as a hedge against inflation.
The festival season, traditionally a time to buy gold, is underway in India and will peak with Dhanteras and Diwali next month. Weddings also take place during this period. Though near-term uncertainties are bogging gold prices, the current downturns to us is merely a corrective phase in an overall bull market and, therefore, expect to see price find support and resume the uptrend.
Comex gold futures are lower in line with our expectations. As mentioned in the previous update, a fall to $1700-05 levels looks likely being a fibonnaci retracement level on the downside or even lower to $1,675. Subsequent to this corrective decline, the upward march could resume and test potential targets above $1,900 levels.
Unexpected decline below $1,670 could postpone the bullishness. Big picture charts suggest the bullish trend to be intact as long as $1,645, a long-term rising trend line support point remains undisturbed.
Immediately, we expect a move to $1,735-45 levels on the upside while $1,695 holds attempts to decline. While resistance at $1,735-45 caps, we expect a decline lower to supports near $1,670-75 once again. This is our favoured view. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still above the zero line of the indicator hinting at bullishness to be intact.
Therefore, look for gold futures to retrace higher initially and then decline again. Supports are at $1,705, $1,675 and $1,645 and resistances are at $1,745, $1,765 and $1,785.
( 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 . )