TECHNICAL ANALYSIS. The road ahead does not look very smooth for Comex gold

Comex gold futures edged lower on Thursday, with investors taking profits after gains of nearly 1 per cent in the previous session on weaker US economic data, and concerns among some Federal Reserve policymakers over lower inflation. Many Fed policymakers expect that interest rates will have to be raised in the “near term”, the minutes of the US central bank’s last policy meeting showed on Wednesday.

However, some members expressed concern over the inflation outlook and emphasised they would be looking at upcoming economic data before deciding the timing of future rate rises. Earlier in the week, Fed Chair Janet Yellen stuck by her prediction that US inflation would soon rebound, but offered an unusually strong caveat: she is “very uncertain” about this, and is open to the possibility that prices could remain low for years to come.

Comex gold futures have been grinding higher so far, but the road ahead still does not look very friendly. There is a lot of choppiness, and it typically tends to happen before a trending move begins – in this case, most likely a down move.

Unlike last year when rate hike fears triggered a sell-off, this time around, a consolidation ahead of the event and prices making higher highs, hint at a possible trending move higher rather than lower.

As mentioned in the previous update, failure to follow-through higher above $1,290 could once again dent the confidence of the bull camp. So far, price action indicates a possible intermediate bottom at $1260 levels. But any unexpected fall below $1,267 could easily drag prices sharply lower to $1,245-50 levels. This level should be considered a good level to give up longs. Strong initial resistances are around $1,295/97 levels, followed by $1,306.

A close above $1,300 could suddenly open the upside again to $1,330-35 levels. Unexpected decline below $1,265, on the other hand, could revive bearish expectations and longs to be abandoned strictly. Such a fall could see prices heading towards our potential bearish near-term targets around $1,240-45 levels again.

The $1,240-45 is a very strong medium-term support and, therefore, we can expect a strong bounce or a retracement from those levels in the coming weeks. The picture is quite mixed presently and favoured view expects prices to break the resistance levels on the back of a weaker dollar.

We will take a look at the wave counts now and understand the possible scenarios that can unfold going forward. It is most likely that the fall from the all-time highs at $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.

Subsequently, 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. But failure to follow-through above $1,355 has dashed any hopes of any impulsive up move.

As prices have broken certain important supports and shows weakness targeting $1,100 levels. But a sustained move above $1,200 has once again revived bullish hopes, and will make the necessary adjustments to the wave counts, as the prices break key resistance above.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold.

The averages in MACD are still below the zero line of the indicator again, indicating a bearish reversal. Only a cross over again above the zero line could hint at a reversal in trend to bullish.

Therefore, buy Comex gold around $1,285/87 with stop loss at $1,264 targeting $1306. Supports are at $1,285, $1,267 & $1,255 and resistances are at $1297, 1305 & 1335.

The author is the Director of Commtrendz Research and there is risk of loss in trading