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Friday, Feb 20, 2004

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Industry & Economy - Gold & Silver

Gold may dip before rising


GOLD prices continue to rise again on the back of a rally in the Euro and other major currencies against the dollar. Talks of European central bank intervention or rate cuts depressed the precious metals markets for a while.

However, comments from the ECB President eased down those concerns and a renewed interest in selling the dollar is seen. With a weaker dollar, ability and desire to own gold is greater now than ever. The Euro rose to a fresh record high above $1.29 on Wednesday as upbeat US data failed to change market's bearish views of the greenback, with the Australian dollar and sterling pound also hitting multi-year highs.

The CFTC commitments report on the COMEX gold has again added to the positive sentiment with the net speculative long position falling lower. Speculators seem to have decreased their long positions they had held at the beginning of the year on profit taking leaving more room for adding fresh long positions.

Gold prices moved higher on expected lines. Good resistance will be seen between $418-420 and stronger resistance will be at $430.

A rising trend line resistance comes in at $438 and close above that level will see gold prices headed much higher. For the current uptrend to sustain, support at $405-407 will be crucial and a break below that will risk the possibility of a test towards the $390 levels again.

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 $415-420 levels, we should be looking at a corrective pattern unfolding with a lower target.

RSI after being in the overbought zone for quite some time 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, have gone above the zero line of the indicator indicating bullishness. Prices are higher than the short- term 9-day EMA at $410.25 and the medium term 25-day EMA is at $408.90.

Look for prices to correct lower initially and then head higher. Supports are at $409.80, 407 and 405. Resistances at $415, 420 and 430.50 respectively.

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

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