Comex gold to test supports, rise

Comex gold futures ended higher on Friday, as market participants took profits a day after the precious metal hit a one-month high, and safe-haven buying dried up, as a possible deal by Cyprus eased fears of an escalating euro zone debt crisis.

Cyprus is scrambling to avoid a meltdown of its banking system and a possible exit from the euro, facing a deadline from the European Union of Monday to raise €5.8 billion to secure a €10 billion ($13 billion) international lifeline.

Gold’s 12-year bull run has benefited in the last three years from the euro zone crisis. It culminated to a record high of $1,920 an ounce in September 2011 as fears about Greece’s debt problems boosted bullion prices while equities plunged.

Also underpinning prices was a warning by Fitch Ratings that Britain could lose its AAA rating, citing high government debt levels and weak growth.

Comex gold futures are moving higher in line with our expectations.

As mentioned in the previous update, a direct rise above $1,601 could see prices bouncing back higher again. Such a move could find resistance at $1,625 followed by $1,640-45.

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.

In the coming week, we expect prices to find support in the $1,595-98 range and move higher towards $1,625 or even higher to $1,645. However, a fall below $1,574 could revive bearish expectations of a test of $1,525 or even lower. Favoured view expects prices to find support near the levels mentioned above and bounce higher from there.

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 to be intact.

Therefore, look for gold futures to test the supports and rise again.

Supports are at $1,598, $1,574 & $1,525 and resistances are at $1,625, $1,645 & $1,695.

(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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