Comex gold futures ended lower on Friday as the stimulus measures by central banks failed to provide momentum to follow-through higher. Gold's gains stalled short of $1,800 an ounce last week, causing traders to cash in on the metal's rally amid a lack of major economic news seen propelling gold higher. Gold could however rebound because of euro zone debt worries and economic uncertainty amid prospects of a US “fiscal cliff” of automatic spending cuts and tax increases scheduled for January. That scenario could shock the economy and lead to more money printing from the Fed. Holdings of gold-backed exchange-traded funds also fell for the first time in two weeks on Thursday, but were still close to a record high.
Comex gold futures corrected lower as expected. As mentioned in the previous update, a fall below $1,755 could result in a sharp corrective dip to $1,700-05 levels being a fibonnaci retracement level on the downside or even lower to $1,675. However, subsequent to this corrective decline, the upward march could resume and test potential targets above $1,900 levels. Unexpected decline below $1,670 could postpone the bullishness. Big picture charts suggest the bullish trend to be intact as long as $1,645 remains undisturbed. While resistances in the $1,777-78 caps upside attempts prices could continue to ease lower towards support levels in the coming sessions.
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 neutral zone now indicating that it is neither overbought nor oversold. It is also showing a negative divergence where prices are making a higher high, not confirmed by the same in the indicator. 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 correct lower. Supports are at $1,745, $1,733 and $1,705. Resistances are at $1,778, $1,795 and $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 .)