Comex gold futures ended higher on Friday shortly after Fitch Rating cut Spain's debt ratings, renewing fears of spreading euro zone credit problems and pressuring the euro, which in turn led investors to cover short positions ahead of the long holiday weekend. Markets will be closed on Monday for the Memorial Day holiday, along with other US financial and commodity markets. Earlier, in the week gold was well supported by concerns over the Korean Peninsula and a weakening dollar. Gold also found modest fundamental support from a rise in holdings of the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, to a new record, showing global appetite for less risky investments continues on lingering euro zone debt fears and tensions between South and North Korea.
Comex gold futures are moving in line with our expectations. As mentioned in the previous update, there are various supports which could hold the downside attempts. We saw the trend line support near $ 1,165, holding and bouncing higher from there. A bullish head-and-shoulder pattern base completed in March, reached a potential target at $1,250. In the weekly charts, bearish signs are getting more stronger which makes us feel any upside attempts could get resisted strongly for a test of supports at $1,155 or even lower to $1,135-1,145 levels. However, unexpected fall below here could hint at a stronger correction. Resistance will be strong in the $1,215-1,220 zone now.
Our wave counts still remain the same and will need a review on a close below $1,115.
Elliot wave analysis now indicates a possibility of a fourth wave corrective move possibly getting over at the recent low of $1,044. A daily close above $1,135-1,145, has added hopes of a possible fifth wave like move towards higher level of $1,285 or even higher towards $1,350.
RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are above the zero line of the indicator indicating a bullish trend to be intact. Negative divergences in indicators are also bearish.
Therefore, look for gold futures to test the resistances and then decline lower subsequently.
Supports are at $1,205, $1,185, and $1,155. Resistances are at $1,220, $1,230 and $1,255.
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.)
