Gold to consolidate, rise

Comex gold futures ended lower on Friday, due to profit-taking by investors following the longest rally since August. Silver dropped for the second straight day.

However, gold posted its fourth consecutive weekly gain as the crisis in Libya and soaring oil prices stoked inflation worries.

Political turmoil in parts of the West Asia and North Africa drove gold higher in the previous eight sessions. Fears over supply disruptions from oil exporter Libya and potential unrest in other major producers in the West Asia have sent US crude futures 14 per cent higher, their biggest weekly gain since March 2009.

However, surprisingly, investment demand in developed markets for products such as gold-backed exchange-traded funds remained soft.

Holdings of the largest, New York's SPDR Gold Trust, fell to a nine-month low at 1,211.568 tonnes on Thursday.

Comex gold futures rose higher as expected. As mentioned in the previous update, once above $1405 on a closing basis prices could gradually ease higher. Once near-term resistance at $1425-35 is taken out, we can expect prices to inch higher towards $1455 or even higher to $1495.

However, a minor consolidation is seen now between $1390-95 and $1415-20 levels. Unexpected fall below $1390 could result in a corrective decline targeting $1365 levels initially.

However, as mentioned in the previous update, indicators confirm a bullish reversal trend in gold and a possibility of making new highs now.

Supports are now seen at $1390 followed by $1365 levels. Only an unexpected decline below $1351 could revive bearish hopes again.

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 rather than that of an irregular wave “B” as prices crossed $1485.

We now see the recent high of $1435 as the end of a third wave impulse only and a decline to $1309 as an end of a minor corrective A-B-C decline.

RSI is still in the overbought zone now indicating the possibility of a correction in the coming sessions.

The averages in MACD have crossed above the zero line of the indicator signalling a bullish reversal.

Therefore, look for gold futures to consolidate and then rise higher again.

Supports are at $1,395, $1,385 and $1,365.

Resistances are at $1,425, $1,435 and $1,455.

(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 .)

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