Comex gold futures ended lower on Friday, and sank more than 5 per cent on Friday, as institutional investors fled bullion in favour of other haven assets amid concerns about central bank sales and souring sentiment. Selling became heavy after an unexpected contraction in US retail sales data, which hurt stocks and supported the dollar. It added to pressures that were building this week from several factors, including a draft plan for Cyprus to sell bullion and outflows from exchange-traded gold funds. Bullion has soared for more than a decade due to its status as a haven investment in troubled times and in response to inflation fears as the Federal Reserve embarked on an aggressive stimulus program to jump-start the US economy. But with signs of a tentative recovery now in world's largest economy, further losses could be looming in gold.
Comex gold futures moved lower as expected. As mentioned in the previous update, $1,525 gave way and the decline has begun. The bear trend is in full force. Favoured view expects that resistance near $1,515/30 could cap upticks for next decline towards $1,450 being a Fibonacci retracement level or even lower. Projections for the current decline extend to levels like $1,390 also. It has to rise above $1,525 to hint that the expected decline might not be as severe as given above. Such a recovery could find strong resistance at $1,550 followed by $1,595. We have been maintaining that the long-term trend for gold remains intact as long as $1,525 remains undisturbed. We remain neutral now and will observe the above mentioned levels closely for any positive signs.
The wave counts need to be reviewed once again. As mentioned earlier, 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 $1,390-92. RSI is in the oversold zone now indicating that a possible upward correction is in the offing. 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 support levels and then rise.
Supports are at $1,440, 1,395 and 1,305 and Resistances are at $1,525, 1,555 and 1,595.
(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.)