Comex gold futures ended lower Friday as European banks stress results did not throw any major negative surprises to stir safe-haven demand but the metal largely held its ground after stress tests showed seven weak European banks were strong enough to withstand another recession. As expected, no big banks failed the health check, but banks in Germany and Greece were seen as weak spots and in need of restructuring. Investors did not rush into gold, viewed as a safe haven in times of economic uncertainty, because the test outcome has already been factored into prices. A stronger dollar against the euro has pressured bullion this week. The usual inverse relationship between gold and the dollar too weakened at the start of the year as both benefited from risk aversion during the sovereign debt crisis, but has since shown signs of re-emerging.
Comex gold futures are moving in line with our expectations.
As anticipated in the previous update, strong resistance is still seen in the $1,205-1,210 zone. A consolidation is seen now which can take prices lower towards $1,165-1,170. A long-term trend line support comes in at $1,175-1,180, which has held well so far. This also happens to be a fibonnaci retracement point and therefore, strong support can be seen in the coming sessions there. Failure to hold support at $1,170-1,175 levels could drag prices lower towards $1,135 levels or even lower to $1,125. Rallies to $1,205-1,200 should cap upside attempts in the coming sessions for a decline to the above mentioned levels. Only an unexpected rise and close above $1,220 could cause doubts on our bearish view and would force us to abandon it.
Our wave counts are indicating that the impulse moves have ended and corrective ones have started and a close below $1,115 would validate this view.
Elliot wave analysis now indicates a possibility of a fifth wave impulse possibly getting over at the recent high of $1,266. A daily close below $1,135 will now confirm the beginning of a possible A-B-C, corrective move has started.
RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD have gone below the zero line of the indicator indicating a bearish reversal. Negative divergences are confirmed which is bearish and could result in a sharp fall.
Therefore, look for gold futures to test the support levels in the coming sessions.
Supports are at $1,175, $1,152 and $1,135. Resistances are at $1,195, $1,205 and $1,218.
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.)
