Comex gold futures ended lower on Friday, as the dollar strengthened and investors cut exposure to the precious metal, fearing further fall in prices and choosing other asset classes such as equities instead.
Equities gained on the back of strong US economic data, and on fears the Federal Reserve could end its bullion-friendly bond buying programme.
Gold is headed towards a low last seen in April, when fears of European countries liquidating gold reserves sent gold prices tumbling. Physical demand was also quiet on Friday as consumers in the biggest gold buyers, India and China, wait for prices to stabilise or drop further.
Demand in India is being hurt by central bank curbs on gold imports. Limits on bank consignments have hit supply and triggered a sharp jump in premiums. Comex gold futures declined sharply lower in line with our expectations.
As mentioned in the previous update, fall below $1,420 could gather momentum and go on to test the long term downside targets in the $1,275-1,300 zone. Several indicators suggest gold is already in the final stages of a bear market. A 38.2 per cent pullback from its 2011 peak at $1,923 would be close to $1,280-85.
And a 50 per cent retracement of a rally that began in 2008 would be close to $1,300-02.
In the coming week, the decline could accelerate further towards $1,295 or even lower to $1,265. Resistance points are lying near $1,395-1,415 and a stronger one near $1,440. It has to rise above $1,450 to cause some uncertainties about this bearish expectation.
The wave counts need to be reviewed once again. A possible corrective wave “C” has ended at $1,523 and a possible new impulse has begun with a potential to test $2,025-30 levels in the form of a fifth wave move.
However, a move below $1,690 has increased the possibility that the broad corrective consolidation is in progress now and the impulse has been converted to a corrective move in the form of a wave “C”.
Wave “A” begun from $1,920, and ended at $1,527. Wave “B” begun from $1,527 and ended at $1,798. Wave “C” has begun from there. Projected targeted for the wave “C” is at now at $1,265-1,300.
RSI is in the still 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 bearishness to be intact.
Therefore, look for gold futures to decline and test the supports. Supports are at $1,340, $1,295 and $1,265 and resistances are at $1,400, $1,440 and $1,485.
(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.t@gmail.com .)