Comex gold futures ended higher on Friday as market participants bet China was more likely to ease monetary policy after data showed the country's economy continues to slow.
Chinese data showed July exports rose just 1 per cent from a year ago and the Thursday’s data showed factory output rising at its lowest pace in three years.
But markets were still reluctant to place large bets on central bank action.
The Federal Reserve and European Central Bank have repeatedly disappointed gold bulls this year by not announcing major monetary easing programs.
Speculative traders cut their bullish bets on Comex gold futures and options by 11 per cent during the week ended August 7, according to data released on Friday by the CFTC indicating indecisiveness of market participants currently.
Comex gold futures moved higher in line with our expectations.
As mentioned in the previous update, a sideways consolidation is still under way with key supports in the $1,545-1,550 zone followed by critical support at $1,525. While these two supports hold, we still hold on to our bullish view of a break above $1,645 opening the way up once again.
Only a daily close above $1,645 has the potential to test the critical trend-line resistance at $1,695-1,700 levels on the upside or even higher to $1,785-1,800 levels.
Immediate supports are at $1,600-1,605 levels followed by $1,575-1,580 now.
We still favour an upside breakout while prices stay above support levels.
Only an unexpected daily close below $1,560 could lead to a decline towards $1,525 or even lower.
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.
With the current price move going to $1,627, we feel a broad corrective rally is still under way.
We will review the counts once we see an impulse move breaking the upside at $1,795.
The Relative Strength Index is in the neutral zone indicating that it is neither overbought nor oversold.
The averages in MACD have gone above the zero line of the indicator hinting at a bullish reversal once again.
Therefore, look for gold futures to consolidate and rise once again.
Resistances are at $1,625, $1,645 and $1,700 and supports are at $1,585, $1,545 and $1,525.
(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.)