Comex gold futures fell to a six-month low on Friday after the Federal Reserve’s move to cut back its bond-buying stimulus prompted a huge sell-off.
It has lost nearly four per cent for the week, and 29 per cent for the year.
The Fed’s $85 billion in monthly bond purchases, along with other monetary stimulus measures, had fuelled a big run-up in gold prices in the last few years, with the metal hitting an all-time high of $1,920.30 in 2011.
However, with an improving economy and stubborn low-inflation in the US, gold’s appeal has dropped off. Prices going below $1,200 level could force miners to start cutting production and this could support prices once they have found a bottom soon.
The coming week could see very volatile moves as trading gets thinner on the back of the holiday season.
Comex gold futures are moving in line with our expectations.
As mentioned in the previous update, favoured view expected that weekly resistance at $1,265-70 could cap the upside for a fall towards an important weekly support at $1,195.
As cautioned, as the weekly and daily trend is bearish, there is a good chance for the price to break below this support and head towards next breakdown point at $1,175-85, opening the way for a projected objective at $1,135-45.
Such declines could be a potential start for a long-term investment opportunity, considering the long-term trend which still looks healthy for gold.
For the coming week, charts look bearish suggesting that price might attempt to break next important support at $1,162. Such a break might lead it towards $1,120. Resistance are near $1,215-1,225. Upticks if any could be blocked in this area. It has to cross above $1,235 to lessen the chances for the expected decline.
The wave counts need to be reviewed once again. A failed fifth wave move at $1,800 resulted in a corrective decline to $1,181 in the form of wave ‘A’. A possible wave ‘B’ is in progress with targets near $1,420 or even higher to $1,485. This means a wave ‘C’ is expected to follow through which could target $1,150 or even lower.
Alternatively, from the peak of $1,920 a corrective decline in the form of ‘A-B-C’ is already over at $1,181 and a new impulse has begun.
Confirmation of such an impulse will be seen at $1,535. With the present move failing near $1,435-40, we will go with wave ‘B’ ending at $1,433 and a possible Wave ‘C’ underway with targets near $1,145-50 or even lower to $1,045.
RSI is in the neutral zone now indicating that it is neither oversold nor overbought. The averages in MACD are below the zero line of the indicator hinting at bearishness to be intact. Only a cross-over above the zero line could hint at bullishness again.
Therefore, look for gold futures to test the support levels.
Supports are at $1,185, $1,145 and $1,120. and resistances are at $1,220, $1,255 and $1,275.
(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. )