Gold may consolidate, rise

Comex gold futures ended almost flat on Friday as worries about the euro zone debt crisis and the absence of stimulus measures in the US buoyed the dollar and its safe haven appeal.

Gold edged slightly higher right after China released its second-quarter growth data, which showed the world's second-largest economy grew at the slowest pace since early 2009 but may have stabilised.

Markets were also boosted by short-covering from the trade and on hopes that the Chinese Government will soon undertake additional easing or other stimulus to kick-start the below-target growth rate.

Physical buying has been sluggish in recent months in Asia.

Holdings of gold-backed exchange-traded funds dropped for the third straight session on Thursday to 70.4 million ounces, down 0.7 per cent.

Comex gold futures continue to move in a volatile range. 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. There is no change in view.

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, 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 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 higher 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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