Comex gold futures ended lower on Friday, as market participants weighed the continued demand for physical gold against brighter economic data, which could curb interest in gold over the longer term.
Gold prices plunged initially after the monthly data showed consistent growth in the US labour market.
The US employers added 1,65,000 jobs in April, surpassing forecasts. Data for the past two months also were revised higher. Federal Reserve said it will roll back supportive monetary policies once the labour market strengthens.
Therefore, investors worry that demand for gold will languish in the absence of these measures.
Managed money funds raised bets on higher gold prices as the market recovered from its worst two-day rout in more than 30 years, according to regulatory data released on Friday. Markets closely look at the CFTC data, especially shifts in the net speculative position, for clues about market sentiment.Comex gold futures retraced higher as expected. As mentioned in the previous update, there are various supports now which could hold for a push higher to $1,525-45 levels.
The support near $1,425 held well. While $1,430 holds, we expect the rally to gather steam and head towards $1,525 or even higher to $1,540-45 which is a significant resistance point. However, a direct 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, a push above $1,507 is needed to lift it to $1,525 but what looks more probable is that corrective recovery could exhaust near $1,495/1,505 area itself and start displaying signs of peaking.
Unexpected direct fall below $1,430 would hint at the possibility of a premature end to the corrective action.
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 and wave “C” has begun from there.
Projected target for the wave “C” is at now at $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 test the resistance levels and then decline lagain.
Supports are at $1,435, $1,400 and 1,350 and resistances are at $1,485, $1,510 and $1,525.
(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.)