Comex gold futures ended higher on Friday, on physical buying, failing to hold onto earlier sharp gains, as bullion posted heavy losses for a second consecutive week.
The market was supported later this week as consumers snapped up bars, coins, nuggets and jewellery as a slump in the price of the yellow metal released years of pent-up retail demand.
Bullion around the world saw heavy volumes of physical buying and buying specifically in top consumer India improved further.
A plan by Cyprus to sell excess gold reserves to raise around €400 million ($523 million) sparked off gold’s rout, as the news led to speculation that other indebted euro zone countries could follow suit. Since, the fall happened on perceived risk event and not based on any fundamental change, gold could likely find good bargain-hunting interest from here.
Comex gold futures moved lower as expected. As mentioned in the previous update, next decline is towards $1,450 being a Fibonacci retracement level or even lower and projections for the current decline extend to levels such as $1,390 also.
Since, the bear trend is in full force, any supports are being negated. Prices have tested a low of $1,321.
The question is, whether prices are low enough to suggest a bottom is in place.
There are indications that we’re close, but with volatility so high, it is dangerous to place bets in either direction right now.
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.
A recovery to either $1,475 or even higher to $1,517-20 looks likely in the coming sessions either after the decline ends near $1,300 or from the present levels itself.
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 still 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 retrace higher subsequently.
Supports are at $1,395, $1,353 & $1,285 and resistances are at $1,475, $1,520 & $1,555.
(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.)