Comex gold futures ended modestly higher on Friday on deflation worries and a lack of aggressive Federal Reserve stimulus.

Bouts of safe-haven buying was seen on the back of Moody’s downgrading the ratings on 15 of the world’s biggest banks, with most receiving either one-notch or two-notch downgrades.

These downgrades come in the wake of a number of macroeconomic data reports that point to a slowdown in the economies in China, Europe and the US.

Weak physical demand from consuming countries such as India, as the government took strong measures to curb imports due to the high current account deficit, has also been a point of weakness for the precious metals markets lately.

Volatile range

Comex gold futures are moving in a volatile range again. Resistance was once again strong in the $1,635-1,645 zone. Failure to surpass this near-term resistance resulted in a sell-off subsequently.

Once again focus would turn to the crucial supports in the $1,530-1,545 zone. Price structures look weak and a possible decline below $1,525, a long-term support level looks likely.

Such a fall could take prices to the next important support at $1,460-1,470 levels. However, if prices do manage to find support again in the $1,530-1,545 range, the upside potential to $1,675 followed by $1,695-1,700 levels still remain.

Favoured view still expects supports to hold for a break above $1,645 in the coming sessions.

The wave counts have to be revisited again as a possible fifth has ended. Potential targets for the fifth wave have already been met. Prices have gone above $1,900 as an extension of the fifth wave.

Fall below $1,600 confirmed that a corrective “A-B-C” has started. It is possible that Wave “A” ended at $1,535 and a wave “B” ended at $1,804. A possible wave “C” has possibly ended at $1,523.

With the current price move going to $1,627, we feel a broad corrective rally is still under way. We will review the counts once we see an impulse move breaking the upside at $1,795.

The RSI is in the neutral zone indicating that it is neither overbought nor oversold.

The averages in MACD have gone above the zero line of the indicator hinting at a bullish reversal. Only a cross-over above the zero line again will indicate weakness.

Therefore, look for gold futures to consolidate and rise higher once again.

Resistances are at $1,595, $ 1,645 and $1,675 and supports are at $ 1,545, $ 1,525 and $1,480.

(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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