Comex gold futures ended lower on Friday, as a rebound in equities and signs of optimism among US consumers pressured investor interest in gold. The robust gains in stocks eclipsed investor appetite for gold, which tends to lose favour with buyers when worries about the economy ease.

Data released on Friday showed the US manufacturing sector expanded at a faster pace in February than a month earlier, surprising investors. The continued outflow of investors from gold-backed exchange-traded funds also turned up pressure on gold prices.

Gold ETFs, which buy and store metal on behalf of investors, saw almost five per cent of their gold holdings wiped away in the month of February alone. Dollar strength looks likely in the coming sessions and that could be negative for gold. However, physical buying and euro zone worries on the back of Italy’s elections could support prices.

Comex gold futures are moving in line with our expectations. As mentioned in the previous update, a retracement to $1,590-95 or even higher to $1,625 levels look likely. Currently, prices are inclined to test supports near $1,535-40 range or even lower to $1,525, which is very critical for the sustenance of the long-term bullish trend in gold. In the bigger and long-term picture prices are still in a broad consolidation after reaching all-time highs at $1,920. There is very good chance of prices testing $2,200-2,300 in 2013 while $1,520-25 remains undisturbed on the downside. In the coming week, we expect prices to find support in the $1,535-45 range and bounce back higher. Failure to find support in the $1,525-45 range could have bearish consequences which we do not favour presently.

The wave counts are gradually hinting that a new impulse is in the offing. A possible corrective wave “C” has possibly ended at $1,523. As mentioned in earlier update, a corrective move in the form of wave A-B-C could have ended at $1,523. A new impulse has begun with a potential to test $2,025-30 levels in the form of a fifth wave move. A perfect confirmation of the same will be seen on a close above $1,785. However, a move below $1,690 has increased the possibility that the broad corrective consolidation in form of an “A-B-C-D-E” is in progress now. 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 bearishness to be intact.

Therefore, look for gold futures to test the supports and rise again.

Supports are at $1,555, 1,525 and 1,470 and Resistances are at $,1595, 1,625 and 1,645.

(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.)

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