Comex gold futures ended higher on Friday after US non-farm payrolls in April rose by the smallest amount since last October triggering safe-haven buying for the metal.
However, gains were capped due to elections in Europe and a string of recent downbeat economic data. The American economy added just 115,000 jobs in April, below a forecast of 173,000 and the upwardly revised 154,000 increase in March. The Federal Reserve has previously said that it would take a deterioration in the labour market, while inflation stayed in check for it to consider launching a third round of so-called quantitative easing. This led to speculation that that the Federal Reserve will add stimulus measures to boost growth. Gold will be sought after now either as a safe bet and should any kind of monetary easing happen then gold will turn out to be good inflationary hedge.
Comex gold futures have been moving in a volatile range. As mentioned in the previous update, while support holds, chances exist for a push above $1,675 levels in the coming sessions. However, failure to sustain and rise higher once again met with selling. This clearly indicates the underlying bearish trend in gold. A broad consolidation is still under way in the $1,610-1,675 zone and a break either way could determine direction in the short-term. The positive factor however, is the ability to attract buying near the $1,600 zone that is keeping hopes of resurgence in gold prices. Rise above $1,675 could open the upside towards stronger trend line resistance near $1,725.
On the other hand, a decline below $1,610 could drag prices lower towards $1,525-1,550 levels. Big picture still hints at bullishness and therefore, decline below $1,600 could potentially turn out to be investment opportunities.
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, it is likely a broad corrective rally is still under way. We will review the counts once we see an impulse move either way. The 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. Only a cross-over above the zero line will hint a bullish reversal.
Therefore, look for gold futures to consolidate and then test the resistance levels.
Resistances are at $1,655, $1675 and $1,725 and Supports are at $1625, $1,600 and $1,550.
(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 .)