Comex gold futures surged to a life-time high on Friday, in thin holiday trade, hitting a record for a sixth consecutive session on a weak dollar and factors ranging from geopolitical uncertainty to inflation concerns. Gold advanced for a third week as a weaker dollar and debt concerns boosted the metal's appeal as an alternative investment. Silver gained to the highest level in 31 years. Supporting precious metals, the dollar was languishing near a three-year low against a basket of currencies, and could take a run at the all-time low hit in 2008, pressured by record low interest rates and the crushing weight of the US budget deficit. Standard & Poor's this week cut its debt outlook for the US to negative from stable.

Comex gold futures are moving higher perfectly in line with our expectations. As mentioned in the previous update, we anticipated the rally to continue higher $1,525-30 being a long-term trend line resistance point. Near-term resistance is at $1,510. Outside chance that this move could even extend towards $1,545-50 levels. However, extremely overbought conditions warn of a corrective decline anytime soon.

Supports at $1,477 have to give way to hint that the corrective decline has started. Subsequently, a gradual decline can be seen towards $1,410 levels or even lower in the coming months. Only an unexpected fall below $1405 could result in a corrective decline targeting $1,345 or even lower to $1,250.

Our wave counts are hinting at a final fifth wave move in progress . Our preference is now towards a beginning a fifth wave targeting $1,495 or even higher towards $1,525-30 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 the extremely overbought zone now indicating that a downward correction looks likely. The averages in MACD are still above the zero line of the indicator, indicating bullishness to be intact.

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

Supports are at $1,493, $1,476 and $1,445. Resistances are at $1,510, $1,525 and $1,545.

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.)

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