Today gold in the global market reversed early gains and fell to its lowest level in more than a month as US futures extended losses on fears that the US would curb its stimulus soon and as a US strike on Syria looked less likely.
According to Reuters, purchases from jewelers in Hong Kong and mainland China initially helped gold gain more than 0.5%, but heavy selling of New York COMEX and bullion futures on the Tokyo Commodity Exchange pushed the price of gold below $1,330 per ounce.
Gold in India, the world's top consumer of the precious metal, fell to its lowest level in three weeks following losses in the world market.
What impact did these circumstances have on the gold’s chart? Where are the nearest support zones and resistance levels?
Let's take a closer look at the daily chart and find out what the current outlook for gold priced in rupees is.
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Since my previous essay
was published, the situation has deteriorated once again. Quoting from this essay on gold in India from September 11:
When we factor in the Fibonacci price projections, we see that the 1.618 ratio was broken today. If the gold bulls don’t manage to push the price higher from here, the next price target for the sellers will be around the 1.732 ratio at Rs 85,514. It’s worth mentioning that this ratio is slightly above the 61.8% Fibonacci retracement level based on the upward move from the August low to the August top (around Rs 85,449 per ounce). This area is also supported by the 45-day moving average (currently at Rs 85,090). If this strong support zone is broken, the next support level will be close to the 50% Fibonacci retracement level based on the entire June-August rally.
As you can see on the above chart, gold priced in rupees broke below all these levels during today’s session. The buyers failed and gold bears did not give them any chance to improve the situation and initiate an upward move.
In this case, the next price target for sellers is around the 76.4% Fibonacci retracement level (based on the upward move from the August low to the August top). However, the strong support zone is between Rs 81,369 and Rs 81,601, where the 61.8% Fibonacci retracement level based on the entire June-August rally intersects with the June top. Taking this information into account, you can see that there is still much room for further declines.
Now that we know the current situation in gold priced in rupees, let’s take a look at the INR/USD chart and find out whether the relationship between gold and the INR/USD exchange rate still exists or not.
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On the above chart, you can see that the situation hasn’t changed much in the decent days. Quoting my previous essay on gold in India from September 11:
[T]he Indian rupee reached the 50% Fibonacci retracement level based on the entire July-August decline. Today we saw a small breakout above this resistance level (but only on an intraday basis), which is not yet confirmed.
Taking the above into account, in the following days, we may see a corrective move to the previously broken declining resistance line based on the July and August 12 tops.
On the daily chart, you can see that there hasn’t been a drop to this declining line so far; instead a consolidation has formed in the recent days. That’s why we should consider two scenarios. If the buyers do not give up and push the price above the Wednesday’s high, the INR/USD exchange rate will likely climb to at least the 61.8% Fibonacci retracement level. Please note that this area is also supported by the 38.2% Fibonacci retracement level based on the entire May-August decline. However, if they fail and the rupee drops below the bottom of the consolidation, we will likely see a decline to about the 159 level.
, taking all of the above facts into account, we can see that Thursday’s decline didn’t trigger an upward move in gold. In other words, the recent negative correlation didn’t work this time. Additionally, it seems that today’s small bounce up in the INR/USD exchange rate pushed the yellow metal even lower. From today’s point of view, it’s hard to estimate whether this tendency changed or if it was just a one-day phenomenon. That’s why it will be important to watch how gold will react to price moves in the rupee against the dollar in the future.
For the full version of this essay and more, visit Sunshine Profits' website.
Nadia is a private investor and trader, dealing in stocks, currencies, and commodities. Using her background in technical analysis, she spends countless hours identifying market trends, major support and resistance zones, breakouts, and failures. In her writing, she presents complex ideas with clarity that enables you to easily understand market changes and profit from them. You can read Nadia's analyses at SunshineProfits.com where she publishes her articles on gold and crude oil trading.
No positions in stocks mentioned.