Comex gold futures ended higher on Friday, as upbeat US labour data added to evidence of an economic recovery that makes haven assets like the precious metal less attractive. Data on Thursday showed the number of Americans filing new claims for unemployment benefits fell for a third straight week last week, the latest indication the labour market recovery was gaining traction. An improving economy would cause the Fed to back away from quantitative easing, it would reduce gold’s attractiveness as a hedge against inflation. Also, gold found some support following reports that a power transformer operated by South African provider Eskom was damaged in a fire, forcing AngloGold Ashanti to idle gold mine production that accounts for about 20 per cent of the country’s output.

Comex gold futures are moving in line with our expectations. As mentioned in the previous update, momentum suggest that prices could find support near $1,545-50 levels or even lower and then find an intermediate bottom there, for a retracement higher towards $1,595-1,625 levels. In the bigger and long-term picture prices are still in a broad consolidation after reaching all-time highs at $1,920. There is very good chance of prices testing $2,200-2,300 in 2013 while $1,520-25 remains undisturbed on the downside. In the coming week, we expect prices to find support in the $1,560-75 range or, a direct rise above $1,601 could see prices bouncing back higher again. Such a move could find resistance at $1,625 followed by $1640-45. However, near-term direction still remains mixed with a mild bullish bias. Favoured view expects prices to find support near the levels mentioned above and bounce higher from there. The wave counts are gradually hinting that a new impulse is in the offing. A possible corrective wave “C” has possibly ended at $1,523. As mentioned in the earlier update, a corrective move in the form of wave A-B-C could have ended at $1,523. A new impulse has begun with a potential to test $2,025-30 levels in the form of a fifth wave move. A perfect confirmation of the same will be seen on a close above $1,785. However, a move below $1,690 has increased the possibility that the broad corrective consolidation in form of an “A-B-C-D-E” is in progress now. RSI is 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 supports and rise again. Supports are at $1,575, 1,555 and 1,525 and Resistances are at $1,597, 1,625 and 1,645.

(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.)

Related Topics