Gold to test resistance, slide

Comex gold futures ended higher on Friday, on safe-haven buying as investors fretted about euro zone debt after Fitch cut Greece's credit ratings. The euro fell against the dollar on caution before upcoming Spanish elections this weekend and the uncertain Greek debt situation. Bullion prices dropped during the week on weak U.S. housing and manufacturing data and uncertainty about the end of the Federal Reserve's bond-buying program. Gold is among one of the assets expected to fall in the three months after the end of the Fed's second massive bond buying operation, also known as QE2. Global investment increased 26 per cent to 310.5 tonnes in the quarter. While bar and coin purchases climbed 52 per cent to 366.4 tonnes, holdings in exchange-traded products backed by the metal however declined.

Comex gold futures are moving in line with our expectations. As mentioned in the previous update, we can expect prices meet with good resistance in the $1,515-20 range for a decline again. Short-term momentum suggests that we can see a push higher towards $1,525-30 on the higher side. However, subsequently prices are expected to head towards $1,445, which happens to be a confluence point, meaning several techniques pointing towards that as a critical support level. Another important long-term trend line support comes in at $1,405 as seen in the chart. This could result in a further decline to even lower to $1,345. Only an unexpected rise above $1,530-35 could force us to abandon our bearish view. Direct rise above $1,527 could however hint at bullishness again.

Our wave counts are hinting at a final fifth wave possibly getting over at $1,577. Our preference is now towards a wave “A” in progress. Subsequently, a pullback in the form of wave “B” and then an even sharper decline lower in the form of wave “C” can be seen now. There is a possibility of the fifth wave to continue rising higher above $1,577 towards $1,600 levels. This will be confirmed on a daily close above $1,530. RSI is 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, indicating bullishness to be intact.

Therefore, look for gold futures to test the resistance levels and then fall lower.

Supports are at $1,495, $1,478 and $1,445. Resistances are at $1,525, $1,538 and $1,555.

(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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