Comex gold futures ended higher on Friday reversing some of its losses encouraged by a rescue plan for the Spanish banks.
The surprisingly large amount of aid removes a huge cloud that has been hanging over financial markets, with investors fearing that a banking crisis in euro zone's fourth-largest economy could have compounded the currency bloc's troubles with Greece.
Investors are now looking for direction after the Federal Reserve Chairman, Mr Ben Bernanke's lack of conviction on additional quantitative (QE3) sent shockwaves through the precious metal markets.
The inverse correlation between gold and the US dollar fell to its weakest in about six months, indicating interest returning to gold.
Volatile range
Comex gold futures moved in a volatile range. However, prices are still finding support near $1,525-1,535 levels. Our expectation for a revival up ahead for gold futures still remains while these supports hold.
Since the supports did not give away, a break above $1,645 could open the upside again for $1,675 followed by $1,695-1,700 levels.
Medium-term targets are in the $1,710 range followed by $1,785-1,800 levels. Very strong support will be seen in the $1,555-1,565 range now followed by the $1,540-1,545 zone now.
Only an unexpected fall below $1,545 could dash our bullish hopes.
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 may be ended at $1,523.
With the current price move going to $1,627, there is a broad corrective rally still under way. We will review the counts once we see an impulse move breaking the upside at $1,795.
RSI
The RSI is in the neutral zone indicating that it is neither overbought nor oversold.
The averages in MACD are still below the zero line of the indicator hinting at bearishness to be intact.
Only a cross-over above the zero line will hint a bullish reversal.
Therefore, look for gold futures to consolidate and rise higher once again.
Resistances are at $1,615, $1,645 and $1,710 and Supports are at $1,575, $1,555 and $1,535.
(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 .)