Gold to test supports, rise

Comex gold futures ended lower on Friday, as the metal tracked riskier assets on fresh worries about the euro zone bailout fund and a mildly encouraging US non farm payrolls report. Leaders of the world's major economies told Europe to sort out its own problems and deferred until next year any move to provide more crisis-fighting resources to the IMF. The metal, however, posted its second consecutive weekly gain, helped by renewed safe-haven buying amid uncertainty to the future of the European Union. The Federal Reserve Chairman, Mr Ben S. Bernanke, signalled more monetary stimulus may be needed to cut unemployment, while the European Central Bank yesterday unexpectedly lowered interest rates.

Comex gold futures rose higher in line with our expectations. As mentioned in the previous update, we can expect gold prices to test a potential target at $1,770-75 levels being an equality target for the current up move. Extension towards $1,790/95 levels looks likely. Strong resistance can be seen at these levels. While supports in the $1,715-20 zone holds, we can expect a test of above mentioned resistance at $1,790-95. Failure to cross $1,778-80 levels being a channel resistance as seen in the chart and an unexpected decline below $1,710 could drag prices lower again. Such a fall could even test recent lows at $1,535 or even lower. We presently view the current up move being a corrective one within a larger decline and only a close above $1,800 could change the bigger picture view to bullish again.

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. RSI is still in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are above the zero line of the indicator hinting at a possible bullish reversal and a resumption of bullish trend. However, a cross-over below the zero line could be a bearish sign.

Therefore, look for gold futures to test the supports and then riser higher again.

Supports are at $1,755, $1735 and $1,710. Resistances are at $1,775, $1,795 and $1,835.

(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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