Comex gold ended sharply higher on Friday, as investors seek to diversify away from equities and some currencies. Before this week, gold climbed for seven consecutive weeks. The Fed Chairman, Mr Ben Bernanke, said the central bank has the tools to spur growth, he refrained from outlining a plan for a third round of so-called quantitative easing. But gold was still set for its first weekly loss in eight weeks after days of profit taking on its surge to record highs at $1,911.46 on Tuesday. Prices slid more than $200 from that level by Thursday due to profit-taking. Gold's long-term bull-run however seems be intact despite this week's fall on lingering fears about a European debt crisis amid new troubles facing Greece underpinned gold's safe-haven appeal.
Comex gold futures moved perfectly in line with our expectations. As mentioned in the previous update, we expected prices having the potential to stretch itself towards psychological $1,900,however we remain cautious on being on the long side from here. A subsequent correction lower tested near-term supports near $1,700. A bounce back from there looks impressive, however, price structures are not conducive for a push above recent highs at $1,920. Prices could find very strong resistance in the $1,850-65 range in the coming sessions. Favored view expects resistances to cap for a decline towards $1,600 levels. However, an unexpected rise and close above $1,900 could begin another strong rally towards the psychological $2,000 levels, which we do not favour presently.
The wave counts have to be revisited again as a possible fifth could be in the making again. Potential targets for the fifth wave have already been met. Prices have gone above $1,900 as an extension of the fifth wave. As of now we feel the fifth wave move has ended. However, a confirmation can be seen only below $1,600.RSI is still in the highly overbought zone both in the weeklies indicating a possible downside correction in the offing. The averages in MACD are still above the zero line of the indicator hinting at bullishness to be intact. Only a cross-over below the zero line in the indicator again will signal the resumption of bearish trend.
Therefore, look for gold futures to test the resistance levels and then fall lower again.
Supports are at $1,810, $1745 and $1,625. Resistances are at $1,850, $1,875 and $1,920.
(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 >firstname.lastname@example.org .)
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