Comex gold futures ended sharply higher on Friday to a five-month high, after a miss in the US non-farm payrolls boosted hopes for more quantitative easing (QE3) when the Federal Reserve meets later this month. The US economy added 96,000 jobs in August, well below a forecast of 1,23,000.

The unemployment rate did fall to 8.1 per cent from 8.3 per cent, but this is only because the number of people in the labour force fell 3,68,000 from July.

Additional accommodation from the US central bank would be viewed as unequivocally supportive of gold because extra liquidity tends to debase the dollar and create future inflationary risks.

Also, central bank cash printing raises the inflation outlook and adds to gold’s attraction as a hedge against rising prices.

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

As mentioned in the previous update, a gradual rise to $1,765-75 levels look likely in the coming months as hinted earlier.

Break above initial resistance at $1,717-20 levels has opened the way for $1,785-95 levels or even higher.

Overbought conditions warn us of a downward correction in the coming sessions.

Such decline could find support in the $1,720 levels initially followed by $1,685 levels.

While these supports hold, the above mentioned upside targets can been tested in the coming sessions. Only an unexpected daily close below $1,645 could turn the picture neutral.

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 $2,025-30 levels.

A confirmation of the same will be seen on a close above $1,785. RSI is in the highly overbought zone now indicating a possible downside correction in the coming sessions.

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 test the resistance levels and then correct lower.

Supports are at $1,720, $1,685 and $1,645 and resistances are at $1,745, $1,785 & $1,810.

(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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