Buy Comex gold if it dips to $1109/ounce

New York (Aug 27)  Comex gold futures were lower Thursday, after its biggest one-day drop in five weeks, supported by speculation that a U.S. rate hike may take longer than expected but still under pressure from a rebound in stock markets and a firmer dollar. A three-day slide in gold prices has eroded the bulk of last week's gains, made after speculation that the Fed would hike rates later rather than sooner initially expected. In the clearest indication yet that fears of a Chinese economic slowdown could influence U.S. monetary policy, New York Fed President William Dudley said the prospect of a September rate hike “seems less compelling” than it was only weeks ago. Markets continued keep to a close eye on China's efforts to support its economy. Equity markets advanced, while European shares and commodities fell as investors balanced strong U.S. economic data and policy comments with fears about China's slowing economy.

Comex gold futures are lower after testing some of our key target expectations. As mentioned in the previous update, the present move looks like an upward correction within a downtrend. We expected a test of $1167-70 levels, with chances of even extending to $1185. But, the drop from resistance levels has been sharp and casts doubts on our overall bullish view. Failure to cross $1165-70 levels is seen as a sign of weakness. An important support zone lies at $1109-10 levels. While, this support holds, we can expect a push higher again. This is our favoured view. As of now, there is possibility for prices to extend higher while supports hold. Unexpected decline below $1105 could dash our bullish hopes and turn the picture neutral. Strong resistance is seen at $1135-45 range in the coming week.

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 $1925 to the recent low of $1088 so far, was either a possible corrective wave “A”, with a possibility to even extend towards $1025-30 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 $1255 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 $1920 can be considered as a fourth wave, then the fifth wave could begin and cross $1700 in the long-term. We are more inclined to go with this as a favoured scenario. If prices do cross-over above $1435, then this possibility will be confirmed. In the short-term though, prices are likely to be under pressure and could edge lower towards $1025-45 levels. RSI is in the neutral zone now indicating that it is neither oversold nor overbought. The averages in MACD are still below the zero line of the indicator, indicating a bearish reversal in trend again. Only a cross over again above the zero line could hint at a bullish reversal.

Therefore, buy Comex gold on dips to $1,109 stop loss $1098 targeting $1355.

Supports are at $1120, $ 1109 & $1085 and Resistances are at $1135, 1165 & 1185.

Source: BussinessLine