Comex gold futures ended sharply lower on Friday selling amid tumbling US equities on economic uncertainty around the world. Several US global manufacturers led by General Electric gave earnings forecasts that disappointed investors, citing weaker demand in Europe. Bullion has erased all of its gains posted after the Federal Reserve in early September launched a third round of bond-buying known as quantitative easing to stimulate economic growth. Bullion weakened as German Chancellor Angela Merkel raised new hurdles to using the euro zone’s rescue fund to battle the region’s debt crisis.

Gold was already under pressure from disappointing economic data this week including US home resale and a jump in jobless claims, and signs that China’s economy has slowed. Comex gold futures are lower in line with our expectations. As mentioned in the previous update, a fall below $1,755 could result in a sharp corrective dip to $1,700-1,705 levels being a Fibonacci retracement level on the downside or even lower to $1,675.

Subsequent to this corrective decline, the upward march could resume and test potential targets above $1,900 levels. This is our favoured view.

Unexpected decline below $1,670 could postpone the bullishness. Big picture charts suggest the bullish trend to be intact as long as $1,645 remains undisturbed. While resistances in the $1,730-1,735 caps upside attempts, prices could continue to ease lower towards support levels in the coming sessions. 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.

A new impulse has begun with a potential to test $2,025-$2,030 levels. A confirmation of the same will be seen on a close above $1,785. The RSI is in 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 hinting at bullishness to be intact.

Therefore, look for gold futures to correct lower.

Supports are at $1,705, $1,675 and $1,645 and Resistances are at $1,735, $1,755 and $1,785.

(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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