Gold may consolidate, rise

Comex gold futures ended marginally higher on Friday as market sentiment improved after Russia revealed it had boosted its bullion reserves in June, but losses in equities and crude oil amid uncertainty over the euro zone debt crisis limited further gains.

Bullion, however, posted a weekly loss after the Federal Reserve Chairman, Mr Ben Bernanke, earlier this week gave no hint of new monetary easing.

In addition, a string of sluggish US economic data stirred deflation worries, denting gold's inflation-hedge appeal. Physical demand in the largest consumer India continues to be weak.

A poor monsoon season so far in India could result in India buying significantly less gold than usual in the second half of the year. Since the rainy season began seven weeks ago, India has seen 22 per cent less rainfall than the 50-year average.

Comex gold futures continue to move in a volatile range. No change in view. As mentioned in the previous update, a sideways consolidation is under way with key supports in the $1,545-1,550 zone followed by critical support at $1,525.

While these two supports hold, we still hold on to our bullish view of a break above $1,645 opening the way up once again.

Only a daily close above $1,645 has the potential to test the critical trend line resistance at $1,695-1,700 levels on the upside or even higher to $1,785-1,800 levels.

Unexpected daily close below $1,525 on the other hand could lead to a decline towards $1,470 or even lower.

We still favour the upside view while critical support holds.

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, 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 below the zero line of the indicator hinting at bearishness once again.

Only a cross-over above the zero line again will indicate bullish strength.

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

Resistances are at $1,615, $1,645 and $1,700 and Supports are at $1,560, $1,545 and $1,525.

(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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