Sell gold on rally to $1,235-40/oz

Comex gold futures edged higher on Thursday as a rally in the dollar showed signs of exhaustion after the currency hit a 14-year high.

Comex gold futures moved against our expectations. We expected prices to hold around $1,267-70 levels and edge up again. But, as cautioned earlier, a fall below $1,267 an ounce could revive bearish hopes for $1,250 levels followed by $1,210 subsequently.

Prices have bounced from the lows of $1,210 levels. A potential target on the downside lies at $1,195-98 levels now. There is also scope for prices to extend lower towards $1,171 levels, if it fails to hold support at $1,195-97 levels. Resistances are at $1,235-40 levels now, and while resistances cap, we can expect a decline to $1,195-98 levels in the coming sessions.

Only a daily close above $1,337 in good volumes could again revive bullish hopes and such a rise will hint that the downward correction has ended and the rally higher above $1,400 levels has begun. In a broader picture, we expect downside from here to be limited and a recovery to begin after testing important levels mentioned above.

Wave counts: It is most likely that the fall from record $1,925 to the recent low of $1,088 so far, was either a possible corrective wave ‘A’, with a possibility to even extend towards $1,025-30 levels or a complete correction of A-B-C ending with this decline. Subsequent to this decline, a corrective wave ‘B’ could unfold with targets near $1,375 or even higher. After that, a wave ‘C’ could begin lower again.

Alternatively, we can also expect wave ‘B’ to extend to $,1476 levels. If the current decline as a whole from $1,920 can be considered as a fourth wave, then the fifth wave could begin and cross $1,700 in the long-term.

As prices have broken certain important resistances and shows impulsive tendencies, we will now stick with the above count. And as mentioned earlier, once prices reach $1,025-45 levels we will look for any signs of reversal. There are signs of a turnaround, and prices convincingly risen in volumes and closed above $1,300 levels, which further reaffirms our wave count.

RSI is in the neutral zone now indicating that it is neither oversold nor overbought. The averages in MACD are still below the zero line of the indicator again, indicating a bearish reversal. Only a cross over again above the zero line could hint at a reversal in trend to bullish.

Therefore, sell Comex gold on rallies to $1,235-40 with stop-loss at $1,256 targeting $1,195.

Supports are at $1,210, 1,195 and 1,170. Resistances are at $1,245, 1,267 and 1,305.

The writer is the Director of Commtrendz Research. There is risk of loss in trading .

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