Gold may test resistance, fall

Comex gold futures rebounded on Friday, on bargain-hunting with the weak outlook for US employment data helped add to the lure of gold. Silver slumped by 12 per cent on Thursday after another margin hike by the CME Group on its Comex silver futures increased the cost of the trading the metal, dragging gold down 3 per cent and triggering a brutal sell-off that sent commodities from oil to copper sharply lower.

A worse-than-expected non-farm payrolls figure, after data on Thursday showing US payroll growth eased in April, could further fuel the commodities sell-off by deepening fears that the world's largest economy is not out of woods yet. Gold though could benefit from its status as a safe haven.

Comex gold futures fell lower in line with our expectations. As mentioned in the previous update, the indicators are extremely overbought hinting that a corrective decline could begin anytime. Fall below $1,525 resulted in a gradual decline. Stronger support is at $1,445 levels or even lower in the coming months. Minor support and bargain-hunting interest has been noticed in the $1,462 range. We could either see a consolidation now or any rallies being met with good resistance in the $ 1,515-1,520 range for a decline towards $1,445, which happens to be a confluence point, meaning several techniques pointing towards that as a critical support level. Only an unexpected fall below $1,445 could result in a further decline targeting $1,345.

Our wave counts are hinting at a final fifth wave possibly getting over at $1,577. Our preference is now towards a wave “A” in progress. Subsequently, a pullback in the form of wave “B” and then an even sharper decline lower in the form of wave “C” can be seen now. There is a possibility of the fifth wave to continue rising higher above $1,577 towards $1,600 levels. This will be confirmed on a daily close above $1,525. RSI is the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still above the zero line of the indicator, indicating bullishness to be intact.

Therefore, look for gold futures to test the resistances and then fall lower subsequently.

Supports are at $1,478, $1,465 and $1,445. Resistances are at $1,510, $1,525 and $1,538.

(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 atgnanasekar_thiagarajan@yahoo.com.)

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