Future does not appear to be so bright for Comex gold

Comex gold futures edged higher, undeterred by the FOMC policy announcement, which set the stage for an interest rate hike in December as expected. Market participants were hardly surprised by the outcome having all but fully priced it in long before the rate-setting committee issued its statement.

Fed rates unchanged

The Fed kept interest rates unchanged on Wednesday and pointed to solid US economic growth and a strengthening labour market, while playing down the impact of recent hurricanes, a sign it is on track to lift borrowing costs again in December.

That shifted the focus to who President Trump will choose to lead the Fed after Chair Janet Yellen’s term expires in February. Rumours hinting that the post will go to Governor Jerome Powell drove the yellow metal higher on bets that this is a relatively more dovish choice than Stanford economist John Taylor. Gold may extend higher if Powell gets the nod as expected, though follow-through may prove to be relatively limited.

Comex gold futures are moving as per expectations so far, but the road ahead does not look friendly. As mentioned in the previous update, price action still indicates a possible intermediate bottom at $1,260 levels. But any unexpected fall below $1,260 could easily drag prices sharply lower to $1,245-50 levels.

Prices are expected to consolidate and inch higher towards $1,300-05 levels now. Failure to follow-through higher from there could once again dent the confidence of the bull camp. Strong initial resistances are around $1,287-87 levels. A close above $1,300 could open the upside again to $1,330-35 levels. Unexpected decline below $1,260, on the other hand, could revive bearish expectations and longs to be abandoned strictly. Such a fall could see prices heading towards our potential bearish near-term targets around $1,240-45 levels again.

The $1,240-45 is a very strong medium-term support and, therefore, we can expect a strong bounce or a retracement from those levels in the coming weeks. Favoured view expects prices to edge higher towards resistances in the very short-term, but it could find the going tougher above $1,300 and failure to follow-through higher, could lead to a sell-off again.

Wave counts

We will take a look at the wave counts now and understand the possible scenarios that can unfold going forward. It is most likely that the fall from the all-time highs at $1,925 to the recent low of $1,088 so far, was either a possible corrective wave A, with a possibility to even extend towards $1,025-30 levels, or a complete correction of A-B-C ending with this decline.

Subsequently, to this decline, a corrective wave B could unfold with targets near $1,375 or even higher. After that, a wave C could begin lower again. Alternatively, we can also expect wave B to extend to $1476 levels.

If the current decline as a whole from $1,920 can be considered as a fourth wave, then the fifth wave could begin and cross $1,700 in the long-term. But failure to follow-through above $1,355 has dashed hopes of an impulsive up move; prices have broken certain important supports and shows weakness targeting $1,100 levels. But a sustained move above $1,200 has once again revived bullish hopes, and will make the necessary adjustments to the wave counts, as the prices break key resistance above.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are below the zero line of the indicator again, indicating a bearish reversal.

Only a cross over again above the zero line could hint at a reversal in trend to bullish.

The writer is the Director of Commtrendz Research. There is a risk of loss in trading.

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