Uptrend in gold may resume

Gold futures ended sharply higher on Friday after China disclosed that their gold reserves have risen sharply. This also raises the prospects of other central banks and funds to add to their existing reserves.

It has also confirmed what many gold bugs have suspected over the years. The massive liquidity infusion by central banks recently has the potential to affect world currencies adversely and increase inflationary concerns. Worries about inflation and th e slide in the dollar mean Beijing wants to diversify into other assets.

More recently, China suggested a move toward a world currency system linked to the International Monetary Fund’s Special Drawing Rights, an idea dismissed by the US Government.

Comex June gold futures moved according to expectations.

As mentioned in the previous update, daily close above $902 revived bullish expectations.

Since it has closed above $910, we can expect bullishness to return again and only a daily close in the coming week above $933 will signal the resumption of the up trend and head higher towards $978 or even higher towards $1033.

Immediate resistance is at $921 a trend line resistance point. Any dips to $893-95 could hold attempts to decline and as long as $882 remains undisturbed, we favour the uptrend to resume higher.

However, unexpected fall below $878 could neutralise 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 $1,000 is a confirmation of the same.

The RSI is in the overbought zone, indicating that a possible correction is in the offing. The averages in MACD are still below the zero line of the indicator again, suggesting a bearish to be intact.

Only a cross-over above the zero line of the indicator could signal bullishness again.

Therefore, expect gold futures to test the resistance levels.

Supports are at $905, 895 & 878. Resistances are at $921, 933 & 958.

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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