The Hindu Business Line : Gold prices seen firm

Gold prices are on the rise again after recent comments from the US Federal Reserve Chairman, Mr Alan Greenspan, on the US interest rates. He indicated that he was in no rush to raise US interest rates despite strong economic growth. However, in the long term he signalled that rates had to rise eventually.

The Fed's semi-annual forecasts upgraded expectations for economic growth to 4.5 to 5 per cent this year. The Fed also revised down its range for inflation to 1 to 1.25 per cent from 1 to 1.5 per cent. Mr Greenspan's remarks on Wednesday helped undo some of the damage to financial markets after the last Fed policy meeting in late January, when a promise to keep rates low for a ``considerable period'' was unexpectedly dropped, fuelling worries about a near-term increase.

Gold prices were quite choppy during the week due to a weaker than expected US jobs report that sent the dollar crashing lower against other currencies. Further, dollar weakness would certainly help gold to touch new highs in this year, where the recent bull-run took gold to 15-year highs at $430.50.

Gold prices headed higher on renewed momentum. A deeper correction to $385, which we were expecting did not materialize. The support at $394.30 held quite strongly. Important resistance will be at $415 and a close above this level will again induce further bullishness for a break of the high at $430.50. Good support will be seen at $405 levels.

Using Elliot wave analysis, we could be in the beginning of a fifth wave impulse rally and a close above $420 will add strength to this view. Alternatively, if strong resistance is noticed between $415 and $420 levels, we should be looking at a corrective pattern unfolding with a lower target. RSI after being in the overbought zone for quite sometime moved lower and is now in the neutral zone indicating that it is neither overbought nor oversold.

A minor positive divergence is seen in the indicators, where prices have made a lower low, which is not confirmed by a lower low in the indicators. The averages in MACD, are still below the zero line of the indicator. Only a move above the zero line in the indicator will confirm a bullish signal. Prices are higher than the short-term 9-day EMA at $406.35 and the medium term 25-day EMA at $407.60. Look for prices to test the resistance levels. Supports are at $409.80, $407 & $405 . Resistances at $415, $420 & $430.50 respectively.

(The author is a trader at Scotiabank and the views expressed by him are his own and not necessarily of his employer. This analysis is based on the historical price movements and there is risk of loss in trading.)

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