Gold may consolidate, rise

Comex gold futures ended higher on Friday, its biggest weekly rise in more than two months as investor expectations of imminent easing by US Federal Reserve was met with reassuring statements from it.

Mixed signals

The latest US data sent mixed messages to investors by showing an improving manufacturing sector but a struggling labour market, after minutes released this week from the most recent Fed policy meeting expressed willingness to launch more bond buying.

Rising crude oil prices further bolstered sentiment as an inflationary hedge.

SPDR Gold Trust, the world’s biggest gold-backed exchange-traded fund, said its holdings had risen to a 4-1/2-month high.

Holdings of the fund have increased by 34.6 tonnes so far this month, compared with an outflow of more than 27 tonnes last month.

Comex gold futures have moved perfectly in line with our expectations.

As mentioned in the previous update, while the supports hold, we still hold on to our bullish view of a break above $1,645 opening the way up once again.

Bullish outlook

We have been maintaining the bullish outlook over the past three months after gold prices hit crucial support at $1,522-1,525 a level from where prices bounced thrice beginning September 2011.

A corrective decline to supports can be seen due to overbought conditions now.

Strong support will now be seen at $1,645 followed by the next important support at $1,625. A gradual rise to $1,765-1,775 levels look likely in the coming months.

Only an unexpected daily close below $1,602 could cast doubts on our bullish view.

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 above $1,627, we feel a possible new impulse has begun.

RSI

A confirmation of the same comes once prices cross $1,685. The Relative Strength Index is in the overbought zone now indicating a possible downside correction in the coming sessions.

The averages in MACD are above the zero line of the indicator hinting at a bullish reversal once again.

Therefore, look for gold futures to consolidate and rise.

Supports are at $1,655, $1,645 and $1,625 and resistances are at $1,685, $1,705 and $1,755.

(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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