Comex gold futures ended lower on a dollar rally as worries for debt-stricken Greece and a surprise move by China to tighten money supply dented sentiment. Further unwinding of carry trade also pressured gold prices lower.
China raised the level of reserves banks must hold for the second time this year, spooking global financial markets because of suggestions it may be reigning in demand.
Sovereign risks and dangers of turmoil in the government bond markets is the main risk for the precious metals.
However, gold futures held well despite all the negative sentiment. Even if the present concerns over Euro zone fiscal deficits subside, we expect gold prices to remain under pressure.
Comex gold futures pulled back higher as expected. We saw a strong pullback from $1,050-1,055 levels. Prices held well above $1,055 and briefly even came close to testing $1,100. We can eventually see this level being tested in the coming session. Important resistance is at $1,107/1,108 now.
Ideally, this level could cap for a decline towards $1,055. This our favoured view. Unexpected rise above $1,126 could cause doubts on this bearish view. Only a further fall below $1,045 will indicate more bearishness.
Such a fall could take it ultimately lower towards $980 levels, which also happens to be the rising trendline support point.
Elliot wave analysis indicates either a corrective move in the form of A-B-C in progress after a strong impulse move or a possible end of a five wave impulse at $1,227. All the potential fifth wave targets have been met.
Now the corrective move could be in its final wave “C” leg. An important long-term Elliot wave objective comes in the $975-980 range for the correction to end.
RSI is in the oversold zone now indicating a possible upward correction in the offing.
The averages in MACD are still below the zero line of the indicator indicating bearishness. Therefore, look for gold futures to test the resistance levels and then decline again.
Supports are at $1,085, $1,072, and $1,055. Resistances are at $1,107, $1,115 & $1,126.
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.)
