Comex gold futures ended sharply higher on Friday, as hopes that the US monetary policy would remain loose after President Barack Obama’s re-election and worries about looming fiscal woes boosted bullion’s appeal.
Investor appetite for haven assets such as gold has increased along with concerns about the US ‘fiscal cliff,’ an automatic tax hike and spending cuts amounting to $600 billion due to take effect early next year that could send the US economy back to recession.
Gold’s gains this week followed nearly a month of steady declines, as the initial euphoria after the Federal Reserve’s announcement of its third large-scale bond buying program wore off.
Those declines stoked physical demand for gold from buyers looking for a bargain, particularly those in Asia. This weekend’s arrival of the five-day Diwali festival in India, historically a peak period for gold jewellery and bullion buying, is expected continue to support prices.
Comex gold futures bounced back higher against our expectations. As mentioned in the previous update, a fall to $1,670-75 levels looks likely while resistance at $1,735-45 cap. However, our expectations of a subsequent decline to $1,645 did not materialise. Our bearish view got dented on a close above $1,726. Any declines now to $1,700-05 is expected to hold well and the rally to resume higher towards initial resistance at $1,760-65 levels.
Once this resistance is cleared, then prices could aim for the important psychological resistance at $1,795-1,800 levels. Unexpected fall below $1,680 could cause doubts on our bullish expectations. Favoured view expects that while supports in the $1,695-1,700 levels hold attempts to decline, prices could grind higher in the coming sessions towards resistances mentioned above.
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. The averages in MACD are still below the zero line of the indicator hinting at a bearishness to be intact.
Therefore, look for gold futures to test the support levels and the rise again. Supports are at $1,710, 1,695 and $1,680 and Resistances are at $1,745, $1,765 & $1,800.
(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.)