Comex gold futures ended higher on Friday on short-covering, however, focus in the first quarter of 2012 will undoubtedly remain Europe, where concerns over the sovereign crisis will continue to weigh on markets. Gold, even with a 20 per cent pullback has been one of the best performers among all commodities this year. Bullion posted a gain of 10 per cent for 2011, its smallest annual rise in three years. Gold prices had already been battling dollar strength, risk reduction and the need for liquidity, and the downside in prices was exacerbated by the FOMC statement failing to hint at further quantitative easing, leading to important technical support levels to be breached amid soft physical demand. The key factors that will determine how supported the gold market is on the downside, will be whether the ETP holdings remain relatively stable and whether physical demand responds to much lower prices.
Comex gold futures fell lower in line with our expectations. As mentioned earlier, failure to hold support near $1,585could drag prices lower towards $1,550-60 being a rising trend line support or even lower. This signifies weakness in the near-term and ideally, prices could retrace all the way lower towards $1,450 levels being a Fibonacci retracement point. Presently, we can expect a pullback towards $1,600-25 levels in the coming sessions and then the decline to continue lower again. Only a move above $1,718 could revive bullish hopes again.
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. Fall below $1,675 could hint at a beginning of the wave “C” targeting $1,400 levels. Only an unexpected rise above $1,810 could force us to review our wave counts. RSI is still in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD have gone below the zero line of the indicator hinting at a bearish reversal. Only, a cross-over above the zero line again could hint at resumption in bullish trend.
Therefore, look for gold futures to test the resistances and then decline again. Supports are at $1,535, $1485 and $1,450. Resistances are at $1,625, $1,645 and $1,685.
Gnanasekaar T.
(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 .)