Comex gold futures ended sharply higher on Friday gaining nearly 2 per cent as the prospect of unrest in Egypt spreading across West Asia fuelled a rush of safe-haven buying in the financial markets. This month, gold has dropped 5.6 per cent, heading for the biggest January slump since 1997.

Gold initially weakened after data showed the US economy gathered speed in the fourth quarter with the biggest gain in consumer spending in more than four years. Unrest in Egypt is not expected to be over anytime soon and that gold could further benefit from the possibility of chaos spreading to other countries in the region.

Investment demand for gold has been soft this year, with holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, down another 3 tonnes on Thursday.

Comex gold futures fell lower in line with our expectations. However, the bounce from there has been sharp and unexpected. As mentioned earlier, there were signs of a good pullback towards $1,345-1,350 levels before eventually falling towards $1,310 levels. Rising trend line support is seen in the $1,310 zone as seen in the chart.

Daily close above $1,345 could now aim for the next resistance in $1,355. Stronger resistances are now in the $1,375 zone and while this zone caps upside attempts, we still expect prices to decline below $1,300. Only an unexpected rise above $ 1,393 would cast doubts on our bearish view. Such a rise could aim for $1,474-1,485 levels.

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. 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 $1,335, $1,321 and $1,305. Resistances are at $1,355, $1,364 and $1,378.

(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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