Gold to consolidate, test resistance

Gold futures, ended lower, on profit-taking after its rally to a three-week high earlier. Gold has risen sharply since the Federal Reserve announced that it would buy $300 billion in longer-dated Treasuries on Wednesday, as fears over dollar weakness and rising inflation boosted prices. Demand from ETFs is helping to compensate for the excess supply in the market left over from a drop-off in jewellery buying.

Physical buying for jewellery in key markets such as India and West Asia has been the hardest hit due to the sharp price rise.

Comex April gold futures rose higher in line with our expectations. Though the $889 support we had cautioned was tested, prices did not close below that level. Rallies to $965 could resist upside attempts in the coming week.

Only a daily close above $972 will signal the resumption of the up trend and head higher towards $1,033 or even higher towards $1,055. Near-term support is at $943-45 now.

Ideally, a consolidation is expected before we see a break higher. Crucial support is now at $932-33 and a daily close below this level could diminish our bullish expectations. We believe that the third wave could have ended at $1,033 and the fourth wave that we have been tracking could have ended at $681 and fifth wave impulse in progress. A daily close above $1000 is a confirmation of the same.

The RSI is in the neutral zone, indicating that it is neither overbought nor oversold. The averages in MACD are still above the zero line of the indicator again, suggesting bullishness to be intact.

Only a cross-over below the zero line of the indicator could signal bearishness. Therefore, expect gold futures to consolidate and then test the resistance levels.

Supports are at $948, 942 & 933. Resistances are at $965, 978 & 990.

Gnanasekar 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.)

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