Gold to test resistance, slip

Comex gold futures rose higher on Friday and were headed for its best weekly gain in two months on hopes that uncertainties in Washington would prompt the Federal Reserve to delay its stimulus tapering. The US Congress reached a last-minute agreement this week to increase its borrowing capacity till early next year, averting an historic debt default and ending a partial government shutdown. As the timeline for the Fed tapering has been extended and the United States has not resolved its budget issues, gold could regain its safe-haven status once again. The tapering could be delayed until early 2014 as the US recovers from the impact of the government shutdown. The only worrying factor for gold is the falling demand from India and China. Barring this fundamental weakness, investors will once again focus on precious metal on the back of it safe-haven status during economic uncertainty.

Comex gold futures pulled back higher against our expectations. As mentioned in the previous update, unexpected recovery past $1,315 could cause doubts about our bearish expectation for a fall to $1,180 levels. As such a recovery could increase the chances for further gains towards $1,318/25, where the picture would turn neutral. Bear trend is showing signs of withdrawal and this might allow the price to rise generally towards nearby resistance area at $1,350/55 for the week. Supports are spread between $1,305 and $1,295. Unexpected dip below $1,290 would erase the minor bullish signs and bring the price back into the earlier bearish mode.

The wave counts need to be reviewed once again. A failed fifth wave move at $1,800 resulted in a corrective decline to $1,181 in the form of wave “A”. A possible wave “B” is in progress with targets near $1,420 or even higher to $1,485. This means a wave “C” is expected to follow through which could target $1,150 or even lower. Alternatively, from the peak of $1,920 a corrective decline in the form of “A-B-C” is already over at $1,181 and a new impulse has begun. Confirmation of such an impulse will be seen at $1,535. With the present move failing near $1,435-40, we will go with wave “B” ending at $1,433 and a possible Wave “C” underway with targets near $1,145-50 or even lower to $1,100. RSI is in the neutral zone now indicating that it is neither oversold nor overbought. The averages in MACD are below the zero line of the indicator hinting at a bearish reversal.

Therefore, look for gold futures to test the resistance levels in the coming sessions.

Supports are at $1,305, 1,280 and 1,265 and Resistances are at $1,335, 1,355 and 1,376.

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 >[email protected].)

Published on October 20, 2013


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