Comex gold futures slid to a four- month low on Thursday as a bounce in the dollar sparked by optimism over US tax reform plans pushed the metal out of its recent narrow trading range.
Traders are now awaiting further direction from US non-farm payrolls data later this week. Next week the Federal Reserve is also expected to announce another US interest rate hike, and to guide on the pace of further increases.
Comex gold futures have broken key supports pushing it lower. As mentioned earlier, there was a lot of choppiness and it typically tends to happen before a trending move begins and in this case most likely a down-move.
The $1,260 per ounce level has been breached, opening the downside further.
Prices could initially drop to $1,245-50. Strong initial resistances are around $1,267 followed by $1,275/77. Only a close above $1,280 can open the upside again to $1,330-35 levels.
Direct fall below $1,240, on the other hand, could revive bearish expectations for $1,206/10 levels in the coming sessions. We still feel the $1,240 level to be supportive in the near-term.
The $1,240-45 is a very strong medium-term support and, therefore, we can expect a strong bounce or a retracement from that level in the coming weeks. Failure to hold here could accelerate the fall in gold prices.
Wave counts: It is most likely that the fall from the record $1,925 to the recent low of $1,088 so far, was either a possible corrective wave “A”, with a possibility to even extend towards $1,025-30 levels or a complete correction of A-B-C ending with this decline.
Subsequently, a corrective wave “B” could unfold with targets near $1,375 or even higher. After that, a wave “C” could begin lower again.
Alternatively, we can also expect wave “B” to extend to $1,476 levels. If the current decline as a whole from $1,920 can be considered as a fourth wave, then the fifth wave could begin and cross $1,700 in the long-term.
But failure to follow-through above $1,355 has dashed any hopes of any impulsive up move. A sustained move above $1200 has, however, once again revived bullish hopes and will make the necessary adjustments to the wave counts, as the prices break key resistance above.
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 again, indicating a bearish reversal. Only a cross over again above the zero line could hint at a reversal in trend to bullish.
Therefore, sell Comex gold around $1,260-65 with the stop-loss at $1,278 targeting $1,240 followed by $1,210.
Supports are at $1240, 1,225 and 1,206. Resistances are at $1267, 1,278 and 1,297.
The writer is the Director of Commtrendz Research. There is risk of loss in trading.