TECHNICAL ANALYSIS. Sell gold on rallies to $1,155-60/oz

Comex gold futures hit their lowest level since early February after the Federal Reserve sounded an unexpectedly hawkish note on US interest rates, sparking a surge in Treasury yields and sending the dollar to a 14-year high.

Comex gold futures moved against our expectations. As mentioned in the previous update, there is scope for prices to extend to lower levels.

Bearish indications dominating the big picture charts still favour a fall to $1,145-per-ounce levels. As anticipated, we did not see prices sustaining above $1,187. And, a fall below $1,160 warned about the possibility of failure of the bullish view.

Presently, prices are inclined to test $1,125 or even lower to $1,115 levels in the short-term from where a minor recovery looks likely.

Such a recovery could find it difficult to cross $1,157-60 levels and then edge lower again towards $1,080 or even lower to $1,045, an important support in the medium-term.

Only a daily close above $1,190 in good volumes could again revive bullish hopes and such a rise will hint that the downward correction has ended.

We still maintain our broader bullish view for gold in the long-term. And the current fall to recent lows could once again be an opportunity to do some bottom picking.

The favoured view expects prices to retrace higher on profit-booking and then decline again, but one should be ready to abandon the bearish view if prices cross above $1,200.

Wave counts: It is most likely that the fall from the record $1,925 to the recent low of $1,088 so far, was either a possible corrective wave ‘A’, with a possibility to even extend towards $1,025-30 levels or a complete correction of A-B-C ending with this decline.

Subsequent to this decline, a corrective wave ‘B’ could unfold with targets near $1,375 or even higher. After that, a wave ‘C’ could begin lower again.

Alternatively, we can also expect wave ‘B’ to extend to $1,476 levels. If the current decline as a whole from $1,920 can be considered as a fourth wave, then the fifth wave could begin and cross $1,700 in the long-term.

As prices have broken certain important resistances and shown impulsive tendencies, we will now stick with the above count.

And as mentioned earlier, once prices reach $1,025-45 levels we will look for any signs of a reversal. There are signs of a turnaround, and prices have convincingly risen in volumes and closed above $1,300 levels, which reaffirms our wave count.

RSI is in the oversold zone now, indicating that an upward correction is in the offing. The averages in MACD are still below the zero line of the indicator, suggesting a bearish reversal. Only a crossover again above the zero line could hint at a reversal in trend to bullishness.

Therefore, sell Comex gold on rallies to $1,155-60 with a stop-loss at $1,175 targeting $1,115, followed by $1,070.

Supports are at $1,115, 1,070 and 1,045. Resistances are at $1,155, 1,187 and 1,205.

The writer is the Director of Commtrendz Research. There is risk of loss in trading.

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