Gnanasekaar T

Gold to test support

Gnanasekaar T. | Updated on February 10, 2013 Published on February 10, 2013

Comex gold futures ended lower on Friday, as the dollar strengthened after ECB President Mario Draghi’s comments yesterday. Gold in dollar terms sold off Thursday after Draghi revealed that the central bank wants to see if recent euro appreciation will affect its inflation outlook. Of all the commodities, this suggestion had the biggest impact on gold as the metal is commonly bought as a hedge against inflation. A firmer dollar weighs on gold prices by making the metal more expensive for holders of other currencies. Comex gold futures moved higher as expected. But, prices failed to clear the strong resistance at $1,690-95 levels. As mentioned in the earlier week, price structures favour an upside now towards the trend line resistance levels at $1,690-95. Once it clears the resistance and closes above $1,698 further extension to $1,725-30 looks likely now. While $1,655-60 holds, chances still exist for a break above $1,690-95. However, failure to hold support at $1,645 could further take it lower towards crucial support at $1,625. Below here a decline to $1,565-75 levels looks likely. We now favour a decline as the indicators are still in negative territory. In the bigger and long-term picture prices are still in a broad consolidation after reaching all-time highs at $1,920. There is very good chance of prices testing $2,200-2,300 in 2013 while $1,520-25 remains undisturbed on the downside.

The wave counts are gradually hinting that a new impulse is in the offing. A possible corrective wave “C” has possibly ended at $1,523. As mentioned earlier update a corrective move in the form of wave A-B-C could have ended at $1,523. A new impulse has begun with a potential to test $2,025-30 levels in the form of a fifth wave move. A perfect confirmation of the same will be seen on a close above $1,785. However, a move below $1,690 has increased the possibility that the broad corrective consolidation in form of an “A-B-C-D-E” is in progress now. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still below the zero line of the indicator hinting at bearishness.

Therefore, look for gold futures to test the support levels.

Supports are at $1,660, 1,645 and 1,575 and Resistances are at $1,675, 1,695 and 1,725.



(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.t@gmail.com.)

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Published on February 10, 2013
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