Gold may consolidate, move higher

Comex gold futures ended mildly higher on Friday notching its biggest weekly decline this year and vulnerable to further falls. Gold futures tanked after the US Federal Reserve Chairman, Mr Ben Bernanke, did not signal another round of monetary easing was imminent, sparking a 5 per cent sell-off on Wednesday.

Gold, however, started the week with a rally to a 3-1/2 month high on economic uncertainty after the European Central Bank gave half a trillion euros of cheap loans to banks.

Sentiment turned bearish when market participants interpreted the ECB move and Mr Bernanke's remarks as the possible end of further monetary easing.

However, a recent oil rally and possible emerging-market or central-bank buying at lower prices and upcoming physical demand from India could support gold prices.

Comex gold futures ended lower sharply against our expectations.

As mentioned in the previous update, a fall below $1,705 could postpone the bullishness temporarily. We expected prices to test $1,805 and then correct lower from there. Prices went as high as $1,792 and then tanked from there.

The trigger for the fall was below $1,762 which opened the way for a huge decline.

Though the decline of this magnitude was unexpected and sharp, it clearly indicates nervousness of the markets due to the high speculative net open long positions.

Now, the decline could either continue to $1,650 or even lower and then resume the rally higher, or prices could consolidate in the $1,685-1,735 range and then breakout higher again towards $1,800 or even higher.

Unexpected decline below $1,600 could damage the bullish picture and bring back focus on $1,520-1,525 levels again.

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. This view has regained momentum as prices went above $1,710 on the upside and a new impulse is under way. However, fall below $1,660 could force us to abandon the present counts and review them again.

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

The averages in MACD are above the zero line of the indicator hinting that the bullish trend continues to be intact.

Therefore, look for gold futures to consolidate and then move higher.

Supports are at $1,695, $1,660 and $1,600 and Resistances are at $1735, $1,755 and $1,795.

(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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