Gold may test resistance levels

Comex gold futures ended higher on Friday underpinned by fears over rising inflation and growing unrest in West Asia. Bullion's gains sparked strong investment buying in silver, which soared to 31-year high, further widening silver's gains over gold and sending the gold-silver ratio to its lowest level in 13 years.

Gold also benefits as a safe haven as worries about the political stability of the region have flared this week, with unrest spreading after protests in Tunisia and Egypt unseated leaders there. Gold buying spiked this week after data showed US core consumer prices rose 0.2 per cent in January, the fastest pace in more than a year, indicating a long period of slowing inflation had run its course. Earlier this week, strong Chinese core inflation had also boosted gold.

Comex gold futures moved against our expectations. As mentioned in the previous update, prices could aim for the next resistance in the $1,365-1,375 levels. It has comfortably risen above $1,365 and has closed the week strongly above $1,385. Near-term trend line resistance is at $1,403-1,405 levels now. A corrective decline from there could be seen targeting $1,365 levels initially. However, indicators confirm the reversal of bearish trend in gold and a possibility of making new highs now. Once above $1,405 on a closing basis prices could gradually ease higher towards $1,485-1,495 levels. Supports are now seen at $1,374 followed by $1,365 levels. Only an unexpected decline below $1,351 could revive bearish hopes again.

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.

Above $1,405, we will be forced to revisit our counts again. The RSI is still in the overbought zone now indicating the possibility of a corrective decline 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 test the resistance levels.

Supports are at $1,375, $1,364 and $1,351. Resistances are at $1,395, $1,405 and $1,425.

(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.)